IRS Tax Tip 2018-83, May 30, 2018
Taxpayers who sell a home may qualify to exclude from their income all or part of any gain from the sale. Below are some things taxpayers should keep in mind when selling a home:
Ownership and use. To claim the exclusion, the homeowner must meet the ownership and use tests. During a five-year period ending on the date of the sale, the homeowner must have:
Owned the home for at least two years.
Lived in the home as their main home for at least two years.
Gain. Taxpayers who sell their main home and have a gain from the sale may usually be able to exclude up to $250,000 from their income or $500,000 on a joint return. Homeowners who can exclude all of the gain do not need to report the sale on their tax return.
Loss. Taxpayers experience a loss when their main home sells for less than what they paid for it. This loss is not deductible.
Reported sale. Taxpayers who cannot exclude the gain from their income must report the sale of their home on a tax return. Taxpayers who choose not to claim the exclusion must report the gain on a tax return. Taxpayers who receive a Form 1099-S, Proceeds from Real Estate Transactions, as part of the real estate transaction must also report the sale on their tax return.
Mortgage debt. Some taxpayers must report forgiven or canceled debt as income on their tax return. This generally includes people who went through a mortgage workout, foreclosure, or other process in which a lender forgave or canceled mortgage debt on their home. Taxpayers who had a written agreement for the forgiveness of the debt in place before January 1, 2017, might be able to exclude the forgiven amount from income.
Possible exceptions. There are exceptions to these rules for persons with a disability, certain members of the military, intelligence community and Peace Corps workers, among others.
Worksheets. Worksheets included in Publication 523, Selling Your Home, can help taxpayers figure the:
Adjusted basis of the home sold.
Gain or loss on the sale.
Excluded gain on the sale.
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.
Tax credit. Taxpayers who claimed the first-time homebuyer credit to purchase their home have special rules that apply to the sale. Taxpayers can use the First Time Homebuyer Credit Account Look-up to get account information, such as the total amount of their credit or repayment amount.
Tax Topic 701, Sale of Your Home
Tax Topic 703, Basis of Assets
Tax Topic 611, Repayment of the First-Time Homebuyer Credit
IRS Tax Map, Selling Your Home