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
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 1040.com return on our Form 4797 screen.
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.