Are you thinking about selling your home? Here is a tax tip for you – you may not need to report the profit from the sale of your home on your tax return.
If you sell your house at a gain, you might be able to deduct at least a part or even all of the profit from your income. To qualify you should have owned and used the property as your main residence for at least two out of five years since the date of sale. If you own the property for less than two years, you may still qualify for reduced exclusion.
You can exclude the gain of up to 250,000 on single tax return or 500,000 on joint tax return and generally, if you can exclude all of the gain, you would not need to report the sale on your tax return. The gain is also not subject to the new Net Investment Income tax, which became effective in 2013.
Usually you can exclude a gain from sale of only one main house per two-year period. You must pay taxes on sale of any other homes – if you own two homes and live in both of them, then the main home would be considered the one you live most of the time. Other factors may be used to determine you main place of residence:
- your place of employment,
- your mailing address,
- proximity to main homes of your family members,
- address used on your Federal tax returns, Driver’s License and Voter Registration card
- locations of your banks, club and religious organization you belong to
If you only used part of the property as your main home, the exclusion will only apply to the gain acquired from the sale of that part of the property.
Should you decide not to exclude gain, you can’t exclude all of it or you have received a Form 1099-S, Proceeds From Real Estate Transactions, you will have to report the sale of your home on your tax return. If you have a loss on the sale, while you cannot deduct it on your return, you will still have to report.
First-time homebuyers, beware – special rules may apply. If you claimed the first-time home buyer credit in 2008, you must repay the credit over a period of 15 years starting in 2010. If your home ceased to be your main residence by the end of the 15-year period. You must include all remaining annual installments as additional tax on your tax return for that year. You will also need to file Form 5405, First-Time Homebuyer Credit and repayment of the Credit.
If you purchased your home in 2009 or 2010 and claimed first-time homebuyer credit, the credit is not required to be repaid unless the home ceased to be your main residence within 36 months form the date of purchase. For more information, please read Publications 523.
With the excitement of moving into a new place, don’t forget to update your address with the IRS and U.S Postal Service.