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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 money you receive from the sale of your home is part of your amount realized on the sale, even if the money is used to pay off the mortgage. However, the money may not be subject to tax.

If your amount realized, which generally includes any cash or other property you receive, plus any indebtedness assumed or paid off by the buyer, minus your selling expenses, exceeds your adjusted basis in your home, you have a capital gain on the sale.  

Your adjusted basis is generally your home’s cost plus any capital improvements (if you financed the purchase of the house by obtaining a mortgage, the mortgage proceeds are included 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 may exclude all of the gain, you do not need to report the sale on your tax return, unless you are required to otherwise file a return and 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, Selling Your Home.  Any gain that you may not exclude must be reported as income on your return.

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