If you realize a gain on the sale of your principal residence some or all of the gain may be excludable from your income. Here are 10 things to remember if you’re selling your home.
1. Normally, you may exclude the gain from your income if you have owned and used the home as your principal residence for two out of the five years prior to the time of sale.
2. You may exclude up to $250,000 of the gain from your income and in most cases up to $500,000 if you file a joint return.
3. You will not be able to use the full exclusion if you have already excluded gain from the sale of your previous principal residence during the two-year period prior to the sale of your current home.
4. If you are eligible to exclude the entire gain, you will not have to report the sale of your home on your tax return.
5. If your gain cannot be excluded it is taxable and must be reported on Schedule D, Capital Gains and Losses and included as part of your tax return.
6. A loss on the sale of your principal residence is a personal loss, and therefore, it is not deductible on your tax return.
7. In Publication 523, Selling Your Home, the IRS provides worksheets to help you determine the adjusted cost of your principal residence, any gain (or loss) from the sale, and the amount of gain you are permitted to exclude from income.
8. If you own more than one residence you may only exclude gain from the sale of your principal residence. If you have a gain on the sale of your other home, you must include that gain in your income. Generally, if you have held the other home for more than one year, the gain will be treated as a capital gain and taxed at reduced capital gain rates.
9. If you received the first-time homebuyer credit, you need to be aware of certain rules that may impact you when you sell your home. For more information, see Publication 523, Selling Your Home.
10. Finally, when you move, you should update your address with the IRS. Form 8822, Change of Address, can be used to inform the IRS of your change of address.