Here are some things the IRS suggests you keep in mind when selling a home. As always, for advice on tax planning and compliance, check with your accountant and/or the Internal Revenue Service for guidance before taking any action.
1. Taxpayers who sell a home may qualify to exclude from their income all or part of any gain from the sale. To claim the income tax exclusion, the homeowner must have owned the home for at least two years, and lived in the home as their main home for at least two years, during a five-year period ending on the date of the sale.
2. 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.
3. Taxpayers who cannot exclude the gain from their income, or choose not to claim the exclusion, must report the sale of their home 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.
4. 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.
5. Taxpayers experience a loss when their main home sells for less than what they paid for it. This loss is not deductible.
6. There are some exceptions to these rules for persons with a disability, certain members of the military, intelligence community and Peace Corps workers, among others.
7. 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.
8. 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.
For more information about income tax obligations when selling a home:
Always check with your accountant and/or the IRS with your questions about income tax compliance and laws.
Source: Internal Revenue Service