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 Capital
Gains on the Sale of a Principal Residence
You may qualify to exclude from your income
all or part of any gain from the sale of your principal
residence.
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 2 years (the ownership test), and
- Lived in the home as your principal residence for at least 2 years (the
use test)
However, there is an exception. If you owned and lived
in the property as your principal residence for less than 2
years, you can still claim an exclusion in some cases. The
maximum amount you can exclude will be reduced. See
Reduced Maximum Exclusion.
Reduced Maximum Exclusion
You can claim an exclusion, but the maximum amount of
gain you can exclude will be reduced if either of the following
is true.
1. You did not meet the ownership and use tests, but the
reason you sold your home was:
- A change in place of employment,
- Health, or
- Unforeseen circumstances (as defined by IRS)
2. Your exclusion would have been disallowed because of the
rule described in
More Than One Home Sold During
2-Year Period, except that the reason you sold the
home was:
- A change in place of employment,
- Health, or
- Unforeseen circumstances (as defined by IRS)
Gain
If you have a gain from the sale of your
principal residence, 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 IRS
Schedule D (Form 1040)
Loss
You cannot deduct a loss from the sale of your principal residence.
Worksheets
Worksheets are included in IRS Publication No. 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
Reference IRS Publication 523
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