If you're selling a home, check out Money Girl's tips to see if you're eligible for a tax break.
If you sold or are about to sell your home, you’re eligible for a nice tax break—if you make money on the sale.
You can exclude all or a portion of the gain you receive on a home sale from your income. That means you avoid paying a massive amount of taxes, in certain situations.
Here are 6 tips to help you understand the rules:
- You must pass an ownership and use test. If you owned and lived in your home for at least 2 out of the 5 years prior to a home sale, you’re eligible to exclude a limited amount of gain on the sale from your income.
- Exclusions apply only to main homes. If you own more than one home, you can exclude the gain on the sale of your main residence only. Your main home is the one you live in most of the time.
- There is an exclusion limit. You can exclude up to $250,000 of a home sale gain from income or up to $500,000 if you’re married and file a joint tax return.
- No reporting may be required. If your gain doesn’t exceed the exclusion amounts above, you don’t even need to report the home sale on your income tax return.
- Gains above the exclusion are taxable. Any gain you make that exceeds the exclusion amount is taxable and must be reported on Form 1040, Schedule D, Capital Gains and Losses.
- Home losses are not deductible. If you sell your main home for a loss, it cannot be deducted from your taxable income.
For complete information, as well as exceptions to the 2-year ownership rule, refer to IRS Publication 523, Selling Your Home. It includes worksheets to help you figure the amount of gain you’re eligible to exclude from tax.
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