Tax guide

Selling Your Home and Taxes

Selling your home may complicate your taxes, depending on whether it's your main home. It's all about gain and loss. Let's explore how.

Gain and Loss

A gain or loss is figured by the IRS using the following formula:

Selling price – selling expenses = amount realized – adjusted basis = gain or loss

  • Selling price: The total amount you receive for your home
  • Selling expenses: Expenses such as commissions, advertising fees, legal fees, and loan charges paid by the seller
  • Amount realized: Selling price minus selling expenses
  • Adjusted basis: The amount the seller has increased or decreased the value of the home since purchasing it

Deducting Gains

If you do have a gain from the sale of your home, you may be eligible to exclude that gain, meaning it's not taxed. You can exclude up to $250,000 if:

  • You have owned the home at least two years.
  • The home has been your main residence for at least two years.
  • For two years from the date of sale, you didn’t exclude gain from another sale.

If you jointly own the home but file separately, both people can claim $250,000 if both taxpayers meet the requirements.

If you’re married and file jointly, you can exclude up to $500,000. To claim the $500,000 deduction:

  • Either you or your spouse must have owned the home for two years.
  • The home must have been the main residence for both you and your spouse.
  • For 2 years from the date of sale, neither you nor your spouse excluded gain from another sale.

If you’re a surviving spouse, you may still claim the higher exclusion if you meet the following eligibility requirements:

  • You haven’t remarried since your spouse died.
  • The sale was no more than two years after the death of your spouse.
  • The home was the main residence for you and your spouse at the date of death.
  • Either you or your spouse owned the home at the date of death.
  • For two years before the date of death, neither you nor your spouse excluded gain from another sale.

If you have a gain that you can’t or choose not to exclude, have a loss, or received Form 1099-S, you must report the sale of your home. You can do that on your return on our Form 4797 screen.

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Selling a Rental Property

If you sell a rental property, you can claim any gain on the property that is above the adjusted basis at the time the property became a rental property.

Also see Cancelled Mortgage Debt, Foreclosure, and Short Sales

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