As the economy slowly
improves, the housing market improves as well, generally speaking.
And that may be the case where you live.
More and more Americans are putting their houses on the market,
some to make that long-delayed purchase of a newer home; some to
take advantage of lower prices to get a bigger place; and some just
to get out of that mortgage altogether.
Depending on your circumstances, you might not have to pay any
extra tax on a profit you make on the sale of your home. But it is
definitely in your economic best interests to do a little planning
before you sign on that dotted line.
The IRS has assembled a handy list of considerations if you have
sold, or are about to sell, your home. Remember that this all
pertains to sale of your main home, not a second home or vacation
The good news is, you should be able to hang on to most, if not
all, the money you get for your house.
Let's get started:
First, think back five years from the date of sale (or the
projected date of sale). In general, you're eligible to exclude
gain from your income if you have owned and used your home as your
main home for at least two of those five years.
If you file Married Filing Jointly, you could exclude up to
$500,000 of the gain from your income taxes. If you file
or Head of Household, the exclusion drops to $250,000. If you're
not sure you qualify, check with a qualified tax preparer.
If you excluded the gain from the sale of another home in the
two years prior, don't expect to do the same this time around. You
might qualify for a partial exclusion, but not for the full
Those taxpayers with more than one home can exclude the gain
only from the sale of their main home. If a second or vacation home
is sold, any gains are taxable. What if you live in both of them?
The IRS says your main home is the one you live in most of the
If you can exclude all the gain, you don't need to report the
sale of the home on your tax return. On the other hand, if your
gain cannot be excluded, it is indeed taxable. Report it on Form
1040, Schedule D - Capital Gains & Losses.
If you took a loss on the sale of your main home, you don't need
to report that, either. The IRS says you can't deduct such a loss
from your return.
Many taxpayers bought their homes using the First-Time Homebuyer
Credit. If that's the case, some special rules apply. Check out the
IRS Publication 523, Selling Your Home, for
Publication 523 has helpful worksheets to help you figure the
adjusted basis of the home you sold, the gain (or loss) on the
and the gain that you can exclude. You might find our
Capital Gains/Loss Calculator helpful in this as well.
And one more thing: Once you've sold your home, don't forget to
update your new address with the IRS and the Postal Service to
ensure you'll get mail from the IRS. You can use Form 8822, Change of Address, to notify the IRS
of your move.
For more information, consult Tax
Topic 701 - Sale of Your Home; and Real Estate Tax Tips - Sale of Residence.