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Property (Basis, Sale of Home, etc.)

Question: If I sell my home and use the money I receive to pay off the mortgage, do I have to pay taxes on that money?

Answer:

The amount of the proceeds from the sale of your home that you use to pay off the mortgage is not a factor in figuring your taxable amount for the sale. Instead, the amount you realize on the sale of your home and the adjusted basis of your home are important in determining whether you are subject to tax on the sale.

If the amount you realize, which generally includes any cash or other property you receive plus any of your indebtedness the buyer assumes or is otherwise paid off as part of the sale, less your selling expenses, is more than your adjusted basis in your home, you have a gain on the sale.

Your adjusted basis is generally your cost in acquiring your home plus the cost of any capital improvements you made, less casualty loss amounts and other decreases. For more information on basis and adjusted basis, refer to Publication 523, Selling Your Home. If you financed the purchase of the house by obtaining a mortgage, include the mortgage proceeds in determining your cost basis in your residence.  

You may be able to exclude from income all or a portion of the gain on your home sale. If you can exclude all of the gain, you do not need to report the sale on your tax return, unless you received a Form 1099-S (.pdf), Proceeds From Real Estate Transactions. To determine the amount of the gain you may exclude from income or for additional information on the tax rules that apply when you sell your home, refer to Publication 523. You must report on your return as taxable income the gain that you cannot exclude.

Additional Information:


Category: Capital Gains, Losses and Sale of Home
Subcategory: Property (Basis, Sale of Home, etc.)

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The OMB number for this study is 1545-1432.
If you have any comments regarding this study, please write to:
IRS, Tax Products Coordinating Committee
SE:W:CAR:MP:T:T:SP
1111 Constitution Avenue NW
Washington, DC 20224