Tax Implications of Selling a Home


 

The IRS has some good news for taxpayers who are selling their home. When filing their taxes, they may qualify to exclude all or part of any gain from the sale from their income. Here are some things that homeowners should think about when selling a home:

Ownership and use

To claim the exclusion, the taxpayer must meet ownership and use tests. During a five-year period ending on the date of the sale, the homeowner must have owned the home and lived in it as their main home for at least two years.

Gains

Taxpayers who sell their main home and have a gain from the sale may be able to exclude up to $250,000 of that gain from their income. Taxpayers who file a joint return with their spouse may be able to exclude up to $500,000. Homeowners excluding all the gain do not need to report the sale on their tax return.

Losses

Some taxpayers experience a loss when their main home sells for less than what they paid for it. This loss is not deductible.

Multiple homes

Taxpayers who own more than one home can only exclude the gain on the sale of their main home. They must pay taxes on the gain from selling any other home.

Reported sale

Taxpayers who do not qualify to exclude all of the taxable gain from their income must report the gain from the sale of their home when they file their tax return. Anyone who chooses not to claim the exclusion must report the taxable gain on their tax return. Taxpayers who receive Form 1099-S must report the sale on their tax return even if they have no taxable gain.

Mortgage debt

Generally, taxpayers must report forgiven or canceled debt as income on their tax return. This includes people who had a mortgage workout, foreclosure, or other canceled mortgage debt on their home. Taxpayers who had debt discharged after December 31, 2017, can not exclude it from income as qualified principal residence indebtedness unless a written agreement for the debt forgiveness was in place before January 1, 2018.

Possible exceptions

There are exceptions to these rules for some individuals, including persons with a disability, certain members of the military, intelligence community, and Peace Corps workers.

For more information about this article, please contact our tax professionals at taxalerts@windes.com or toll free at 844.4WINDES (844.494.6337).

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