Sale of Residence - Real EstateTax Tips

By
Real Estate Agent with Harry Norman Realtors GA#255705 NC#204194

I am surprised all the time by home owners who do not realize that they may not have to pay taxes on the sale of their home. Here are some helpful Sale of Residence - Real Estate Tax Tips thanks to the irs.gov website. Buyers & Sellers should seek the advise of a tax professional if they have any questions.

 

Sale of Residence - Real Estate Tax Tips

You may qualify to exclude from your income all or part of any gain from the sale of your main home. Your main home is the one in which you live most of the time.

Ownership and Use Tests

To claim the exclusion, you must meet the ownership and use tests. This means that during the 5-year period ending on the date of the sale, you must have:

  • Owned the home for at least two years (the ownership test)
  • Lived in the home as your main home for at least two years (the use test)

Gain

If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).

  • 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)

Loss

You cannot deduct a loss from the sale of your main home.

Worksheets

Worksheets are included in Publication 523, Selling Your Home, to help you figure the:

  • Adjusted basis of the home you sold
  • Gain (or loss) on the sale
  • Gain that you can exclude

Reporting the Sale

Do not report the sale of your main home on your tax return unless:

  • You have a gain and do not qualify to exclude all of it,
  • You have a gain and choose not to exclude it, or
  • You have a loss and received a Form 1099-S.

More Than One Home

If you have more than one home, you can exclude gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.

Example One:

You own and live in a house in the city. You also own a beach house, which you use during the summer months. The house in the city is your main home; the beach house is not.

Example Two:

You own a house, but you live in another house that you rent. The rented house is your main home.

Business Use or Rental of Home

You may be able to exclude your gain from the sale of a home that you have used for business or to produce rental income. But you must meet the ownership and use tests.

Example (as shown on irs.gov):

On May 30, 1997, Amy bought a house. She moved in on that date and lived in it until May 31, 1999, when she moved out of the house and put it up for rent. The house was rented from June 1, 1999, to March 31, 2001. Amy moved back into the house on April 1, 2001, and lived there until she sold it on January 31, 2003. During the 5-year period ending on the date of the sale (February 1, 1998 - January 31, 2003), Amy owned and lived in the house for more than 2 years as shown in the table below.

Five Year Period Used as Home Used as Rental

2/1/98-5/31/99

16 months

 

6/1/99-3/31/01

 

22 months

4/1/01-1/31/03

22 months

               

 

38 months

22 months

Amy can exclude gain up to $250,000. However, she cannot exclude the part of the gain equal to the depreciation she claimed for renting the house.

Posted by

 

Karyn Smith Woody, Realtor

 

Harry Norman Realtors

Blairsville Office- 63 Murphy Hwy - Blairsville, GA 30512

 

706-745-3000 Office

706-897-0956 Cell

 

Licensed in Georgia & North Carolina

 

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Rainmaker
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Shuchi Agrawal
Kanam Realty Group/Kanam Commercial - Flower Mound, TX
Serving Dallas / Ft. Worth

Great post, Karyn Smith Woody.  I loved he example you had that showed what constitutes elligibility.  Have a great day and good luck with your business.

Apr 14, 2015 05:03 AM #1
Rainmaker
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Bruce Walter
Keller Williams Realty Lafayette/West Lafayette, Indiana - West Lafayette, IN

Karyn, it is good to read the rules about selling your home and is it a capital gain?  Perhaps after reading 20 posts it will finally resister with me.  Always good to run it by a professional to be sure!

Apr 14, 2015 06:10 AM #2
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Rainmaker
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Karyn Smith Woody

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