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Publication 523 - Introductory Material

Table of Contents

What's New

Mortgage debt forgiveness. You can exclude from gross income any discharge of qualified principal residence indebtedness. This exclusion applies to discharges made after 2006 and before 2013. Additionally, the basis of the principal residence (main home) must be reduced (but not below zero) by the amount excluded from gross income. For more information, see Discharges of qualified principal residence indebtedness , later, and Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment).

Exclusion on sale of main home by surviving spouse. If you are an unmarried widow or widower on the date of sale, you may qualify to exclude up to $500,000 of any gain from the sale or exchange of your main home. For more information, see Sale of main home by surviving spouse under Married Persons, later.

New rule for employees and volunteers of the Peace Corps. If you or your spouse is an employee, enrolled volunteer, or volunteer leader of the Peace Corps, you may be able to exclude from income a gain from selling your main home, even if you did not live in it for 2 years during the 5-year period ending on the date of sale. Generally, you can elect to have the 5-year test period for ownership and use suspended (maximum of 10 years) during any period you or your spouse serves outside the United States (on qualified official extended duty if an employee). This provision applies to a sale of a main home after December 31, 2007, and is now included under a special rule that already allows similar benefits to members of the uniformed services or Foreign Service, or employees of the intelligence community. For more information, see Members of the uniformed services or Foreign Service, employees of the intelligence community, or employees or volunteers of the Peace Corps under Exceptions to Ownership and Use Tests, later.

State and local general sales taxes. The option to deduct state and local general sales taxes instead of state and local income taxes was extended through 2009. See the instructions for Schedule A (Form 1040), line 5.

Nonqualifed use of property used partly for business or rental. Beginning with sales or exchanges of your main home after December 31, 2008, many of the rules discussed in Business Use or Rental of Home , later, will not apply. You will no longer be able to exclude gain allocated to periods of nonqualified use of the property. For information, see Publication 553, Highlights of 2008 Tax Changes.

Reminders

Change of address. If you change your mailing address, be sure to notify the Internal Revenue Service (IRS) using Form 8822, Change of Address. Mail it to the Internal Revenue Service Center for your old address. (Addresses for the Service Centers are on the back of the form.)

Home sold with undeducted points. If you have not deducted all the points you paid to secure a mortgage on your old home, you may be able to deduct the remaining points in the year of sale. See Points in Part I of Publication 936, Home Mortgage Interest Deduction.

Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

Introduction

This publication explains the tax rules that apply when you sell your main home. Generally, your main home is the one in which you live most of the time.

If you sold your main home in 2008, you may be able to exclude from income any gain up to a limit of $250,000 ($500,000 on a joint return in most cases). See Excluding the Gain , later. If you can exclude all of the gain, you do not need to report the sale on your tax return.

If you have gain that cannot be excluded, it is taxable. Report it on Schedule D (Form 1040). You may also have to complete Form 4797, Sales of Business Property. See Reporting the Sale , later.

If you have a loss on the sale, you cannot deduct it on your return. However, you may need to report it. See Reporting the Sale, later.

The main topics in this publication are:

  • Figuring gain or loss,

  • Basis,

  • Excluding the gain,

  • Ownership and use tests, and

  • Reporting the sale.

Other topics include:

  • Business use or rental of home,

  • Deducting taxes in the year of sale, and

  • Recapturing a federal mortgage subsidy.

Worksheets.   Near the end of this publication you will find worksheets you can use to figure your gain (or loss) and your exclusion. Use Worksheet 1 to figure the adjusted basis of the home you sold. Use Worksheet 2 to figure the gain (or loss), the exclusion, and the taxable gain (if any) on the sale. If you do not qualify for the maximum exclusion, use Worksheet 3 to figure your reduced maximum exclusion.

Date of sale.    If you received a Form 1099-S, Proceeds From Real Estate Transactions, the date of sale should be shown in box 1. If you did not receive this form, the date of sale is the earlier of (a) the date title transferred or (b) the date the economic burdens and benefits of ownership shifted to the buyer. In most cases, these dates are the same.

What is not covered in this publication.   This publication does not cover the sale of rental property, second homes, or vacation homes. For information on how to report any gain or loss from those sales, see Publication 544, Sales and Other Dispositions of Assets.

Comments and suggestions.   We welcome your comments about this publication and your suggestions for future editions.

  You can write to us at the following address:


Internal Revenue Service
Individual Forms and Publications Branch
SE:W:CAR:MP:T:I
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224

  We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.

  You can email us at *taxforms@irs.gov. (The asterisk must be included in the address.) Please put “Publications Comment” on the subject line. Although we cannot respond individually to each email, we do appreciate your feedback and will consider your comments as we revise our tax products.

Ordering forms and publications.   Visit www.irs.gov/formspubs to download forms and publications, call 1-800-829-3676, or write to the address below and receive a response within 10 days after your request is received.


Internal Revenue Service
1201 N. Mitsubishi Motorway
Bloomington, IL 61705-6613

Tax questions.   If you have a tax question, check the information available on www.irs.gov or call 1-800-829-1040. We cannot answer tax questions sent to either of the above addresses.

Useful Items - You may want to see:

Publication

  • 521 Moving Expenses

  • 527 Residential Rental Property

  • 530 Tax Information for First-Time Homeowners

  • 544 Sales and Other Dispositions of Assets

  • 547 Casualties, Disasters, and Thefts

  • 551 Basis of Assets

  • 587 Business Use of Your Home

  • 936 Home Mortgage Interest Deduction

  • 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments

Form (and Instructions)

  • Schedule D (Form 1040) Capital Gains and Losses

  • 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)

  • 1040X Amended U.S. Individual Income Tax Return

  • 1099-S Proceeds From Real Estate Transactions

  • 4797 Sales of Business Property

  • 8822 Change of Address

  • 8828 Recapture of Federal Mortgage Subsidy

See How To Get Tax Help , near the end of this publication, for information about getting these publications and forms.

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