Five Summer Tax Tips: Selling Your Home

The Internal Revenue Service continues to issue what it’s calling its “summer tax tips.” Among the latest:  that if you gain from the sale of your main home, you could qualify to exclude part or all of that gain from your income on your tax return.

Below are five tips the IRS wants taxpayers to keep in mind when selling your home:

Number one

“In general,” you can exclude the gain if you have owned your home and used it as your “main home” for at least two of the five years prior to the date you sell it, but you are not eligible for the exclusion if you excluded the gain from the sale of another home during the two years prior to the sale.

Number two

You could be eligible to exclude up to $250,000 of the gain from your income or $500,000 on a joint return “in most cases,” according to the IRS. If you can exclude all of the gain, you don’t have to report the sale on your tax return, but you can’t deduct a loss from the sale.

Number three

Gains that can’t be excluded are taxable and must be reported on Form 1040, Schedule D, “Capital Gains and Losses.” Worksheets are included in Publication 523, “Selling Your Home,” to help you figure the adjusted basis of the home you sold, the gain (or loss) on the sale, and the gain that you can exclude.

Number four

Those taxpayers who own more than one home can only exclude the gain from the sale of their “main home” and have to pay tax on the gain from selling all others; If you have two homes and live in both of them, the IRS considers your “main home” to be the one you live in “most of the time.”

Number five

If you received the first-time homebuyer credit and the property is no longer used as your principal residence within 36 months of the date of purchase, you have to repay the credit, according to IRS regulations. If this is the case, use Form 5405, “First-Time Homebuyer Credit and Repayment of the Credit.”

For more information about selling your home, see IRS Publication 523, “Selling Your Home.”