First Person: Is the Sale of My Home Taxable?

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There are so many things to concern yourself with when you sell your home -- closing costs, listing fees, attorney fees, inspection, title search, land survey, etc. Here's one more concern to add to the list: What are the tax consequences to selling a home?

This article will discuss some of the basic tax rules to keep in mind if you sell your main home, which is loosely defined by the IRS as the home you live in most of the time.

Exclusion amount

You may be allowed to exclude the gain from the sale of your home. The gain is defined as any positive income you net from the sale, after any other mortgage loans or liens on the property are satisfied.

If your filing status is single or married separate, you may be able to exclude up to $250,000. Joint filers may be able to exclude $500,000 from their taxable income.

There are two tests that must be satisfied in order to be able to exclude the gain. You must meet an ownership test, and a use test.

Both of these tests mean that during a 5-year period previous to the date of the sale, you must have

* Owned the home for at least 2 years (the use test)

* Lived in the home as your main home for at least 2 years (the ownership test)

This required 2-year ownership and use period do not have to be continuous, nor do they even have to occur at the same time. Temporary absences are allowed as well, such as for seasonal moves or vacations.

For married individuals filing jointly, they can exclude up to $500,000 but there is a slightly different set of rules to follow. Either spouse must meet the use test, but both spouses must meet the ownership test. Also, neither spouse can already have excluded the gain on a previous property for two years leading up to the date of sale.

Reduced exclusion amount

If you were not able to exclude one-hundred percent of the gain because one of the above tests was not met, you still may be able to omit a portion of the gain.

In order to meet this exception, the sale of the main home must have been due to unanticipated circumstances directly related to your health, welfare or production of income. Relocation due to a job loss or a sale due to medical issues are both examples of unforeseen circumstances.

Form 1099-S

Once the home is sold, the lender will send you a Form 1099-S, Proceeds From Real Estate Transactions. Box 2 on the form shows the total gross proceeds you received for your home. If you received services or property in addition to cash when you sold your home, Box 4 will show the fair market value of these services. Add this to Box 2.

This is not necessarily the amount that would be figured however for the exclusion. Out of this, you need to subtract your selling expenses, such as commissions paid out, selling fees, advertising fees or other charges related to the loan.

For more information, see IRS Publication 523, Selling your Home.

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