Income Tax Deductions
Selling Your Home: FAQs
Also see our discussion: Selling
I sold my principal home this year. What
form do I need to file?
If you meet the ownership and use tests, you will generally only
need to report the sale of your home if your gain is more than
$250,000 ($500,000 if married filing a joint return). This means
that during the 5-year period ending on the date of the sale, you
- Owned the home for at least 2 years (the ownership test), and
- Lived in the home as your main home for at least 2 years (the
If you owned and lived in the
property as your main home for less than 2 years, you may still
be able to claim an exclusion in certain cases, although the
maximum amount you can exclude will be reduced. If you are required
or choose to report a gain, it is reported on Form 1040, Schedule
D, Capital Gains and Losses. This exclusion is generally allowed
no more frequently than once every two years. For additional information,
Tax Deductions: Selling Your Home.
If I sell my home and use the money I receive to pay off the mortgage,
do I have to pay taxes on that money?
It is not the money you receive for the sale of your home, but
the amount of gain on the sale over your cost, or basis, that determines
whether you will have to include any proceeds as taxable income
on your return. You may be able to exclude any gain from income
up to a limit of $250,000 ($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 I take the exclusion of capital gain tax on the sale of my
old home this year, can I also take the exclusion again if I sell
my new home in the future?
With the exception of the 2-year waiting period, there is no limit
on the number of times you can exclude the gain on the sale of
your principle residence so long as you meet the ownership and
I lived in a home as my principal residence for the first 2 of
the last 5 years. For the last 3 years, the home was a rental property
before selling it. Can I still avoid the capital gains tax and,
if so, how should I deal with the depreciation I took while it
was rented out?
If, during the 5-year period ending on the date of sale, you owned
the home for at least 2 years and lived in it as your main home
for at least 2 years, you can exclude up to $250,000 of the gain
($500,000 on a joint return in most cases). However, you cannot
exclude the portion of the gain equal to depreciation allowed or
allowable for periods after May 6, 1997. This gain is reported
on Form 4797. If you can show by adequate records or other evidence
that the depreciation allowed was less than the amount allowable,
the amount you cannot exclude is the amount allowed. Refer to IRS
Publication 523: Selling Your Home for specifics on calculating
and reporting the amount of the eligible exclusion.
Is the loss on the sale of your home deductible?
The loss on the sale of a personal residence is a nondeductible
I have a home office. Can I deduct expenses like mortgage, utilities,
etc., but not deduct depreciation so that when I sell this house,
the basis won't be affected?
If you qualify to deduct expenses for the business use of your
home, you can claim depreciation for the part of your home that
is a home office. Generally, the part of your home that is a home
office is depreciated over a recovery period of 39 years using
the straight line method of depreciatiion and a mid-month convention.
If you do not claim depreciation on that part of your home that
is a home office, you are still required to reduce the basis of
your home for the allowable depreciation of that part of your home
that is a home office when reporting the sale of your home. For
more information, refer to IRS
Publication 587: Business Use of Your Home.
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