People who sell their home may be able to exclude the gain from their income. If you have a capital gain on the sale of your home, you may be able to exclude your gain from tax. This rule may apply if you owned and used it as your main home for at least two out of the five years before the date of sale. If you owned and lived in the place for two of the five years before the sale, then up to $250,000 of profit is tax-free. If you are married and file a joint return, the tax-free amount doubles to $500,000. The law lets you “exclude” this much otherwise taxable profit from your taxable income. (If you sold for a loss, though, you can’t take a deduction for that loss.)
Seven Things you Should Know When Selling Your Home
Important note about the Premium Tax Credit. If you receive advance payment of the Premium Tax Credit in 2014 it is important that you report changes in circumstances, such as changes in your income or family size, to your Health Insurance Marketplace. You should also notify the Marketplace when you move out of the area covered by your current Marketplace plan. Advance payments of the premium tax credit provide financial assistance to help you pay for the insurance you buy through the Health Insurance Marketplace. Reporting changes will help you get the proper type and amount of financial assistance so you can avoid getting too much or too little in advance.
Here are seven things every homeowner should know if they sold, or plan to sell their house.
- Amount of exclusion. When you have gain from the sale of your home, you may be able to exclude up to $250,000 of the gain from your income. For most taxpayers filing a joint return, the exclusion amount is $500,000.
- Ownership test. To claim the exclusion you must have owned the home for at least two years during the five year period ending on the date of the sale.
- Use test. You also must have lived in the house and used it as your main home for at least two years during the five year period ending on the date of the sale.
- When not to report. If you are able to exclude all of the gain from the sale of your home, you do not need to report the sale on your federal income tax return.
- Reporting taxable gain. If you have gain which cannot be excluded, it is taxable and must be reported on your tax return using Schedule D. Deducting a loss. You cannot deduct a loss from the sale of your home.
- Rules for multiple homes. If you have more than one home, you may only exclude gain from the sale of your main home and must pay tax on the gain resulting from the sale of any other home. Your main home is generally the one you live in most of the time.
For more information see IRS Publication 523, Selling Your Home below, or by calling 800-TAX-FORM (800-829-3676). Remember, when you sell your home and move, be sure to update your address with the IRS and the U.S. Postal Service. File Form 8822, Change of Address, to notify the IRS.
Additional IRS Resources on Selling Your Home:
IRS YouTube Videos on the Tax Consequences of Selling your Home:
- Selling Your Home – English | Spanish | ASL
- Premium Tax Credit: Changes in Circumstances – English | Spanish | ASL
- Premium Tax Credit – English | Spanish | ASL