IRS Releases Publication 523 (2016), Selling Your Home
Publication 523 (2016)
- Jurisdictions
- LanguageEnglish
Key Points
This publication explains the tax rules that apply when you sell (or otherwise give up ownership of) a home. It also shows you how to do the calculations you'll need to do.
If you sell your home at a significant profit (gain), some or all of that gain could be taxable. However, in most cases, if the home you sold counts as your main home, the first $250,000 of gain isn't taxable--$500,000 if you are married and filing jointly.
If you sell your home at a loss, the money you receive isn't taxable. However, you can't deduct the loss from other income.
This publication will show you how to determine if you have a gain or loss, how much of that gain is taxable (if any), and how to report your transaction correctly.
To be sure you have the most up-to-date information related to Pub. 523, such as legislation enacted after it was published, go to IRS.gov/pub523.
You may find the following publications, forms, and instructions helpful when you are working through this publication.
Useful Items
You may want to see:
Publication
• Publication 504 Divorced or Separated Individuals
• Publication 505 Tax Withholding and Estimated Tax
• Publication 527 Residential Rental Property
• Publication 530 Tax Information for Homeowners
• Publication 537 Installment Sales
• Publication 544 Sales and Other Dispositions of Assets
• Publication 547 Casualties, Disasters, and Thefts
• Publication 551 Basis of Assets
• Publication 587 Business Use of Your Home
• Publication 936 Home Mortgage Interest Deduction
• Publication 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments
Form (and Instructions)
• Schedule A (Form 1040) Itemized Deductions
• Schedule B (Form 1040A or 1040) Interest and Ordinary Dividends
• Schedule D (Form 1040) Capital Gains and Losses
• Form 982 Reduction of Tax Attributes Due to Discharge of Indebtedness
• Form 1040 U.S. Individual Income Tax Return
• Form 1099-S Proceeds From Real Estate Transactions
• Form 4797 Sales of Business Property
• Form 5405 Repayment of the First-Time Homebuyer Credit
• Form 6252 Installment Sale Income
• Form 8822 Change of Address
• Form 8828 Recapture of Federal Mortgage Subsidy
• Form 8949 Sales and Other Dispositions of Capital Assets
• Form W-2 Wage and Tax Statement
• Form W-7 Application for IRS Individual Taxpayer Identification Number
Additional Resources
Comments and suggestions. We welcome your comments about this publication and your suggestions for future editions.
You can send us comments from irs.gov/formspubs. Click on "More Information" and then on "Give us feedback."
Or you can write to:
Internal Revenue Service Tax Forms and Publications 1111 Constitution Ave. NW, IR-6526 Washington, DC 20224
We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.
Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products.
Ordering forms and publications. Visit irs.gov/formspubs to download forms and publications. Otherwise, you can go to irs.gov/orderforms to order current and prior-year forms and instructions. Your order should arrive within 10 business days.
Tax questions. If you have a tax question not answered by this publication, check IRS.gov and How To Get Tax Help at the end of this publication.
Does Your Home Sale Qualify for Maximum Exclusion
The tax code recognizes the importance of home ownership by providing certain tax breaks when you sell your home. To qualify for these breaks, your home must meet the Eligibility Test, which is explained later.
The type of home involved is less important. A single-family home, condominium, cooperative apartment, mobile home, or houseboat can all count as a home.
How your sale qualifies. Your sale qualifies for exclusion of $250,000 gain ($500,000 if married filing jointly) if all of the following requirements are met.
• You owned the home and used it as your main home during at least 2 of the last 5 years before the date of sale.
• You didn't acquire the home through a like-kind exchange (also known as a 1031 exchange), during the past 5 years.
• You didn't claim any exclusion for the sale of a home that occurred during a 2-year period ending on the date of the sale of the home, the gain from which you now want to exclude.
If all of these are true, skip to Figuring Gain or Loss, later.
If one or more of these aren't true, you might still be eligible. Keep reading to find out.
Transfer of your home. If you transferred your home (or share of a jointly owned home) to a spouse or ex-spouse as part of a divorce settlement, you are considered to have no gain or loss. You have nothing to report on your tax forms and this entire publication doesn't apply to you.
Main Home
If you own or live in more than one home, the test for determining which one is your main home is a "facts and circumstances" test.
The most important factor is where you spend the most time. However, other factors can enter the picture as well. The more of these that are true of a home, the more likely it is your main home.
• The address listed on your:
• U.S. Postal Service address,
• Voter Registration Card,
• Federal and state tax returns, and
• Driver's license or car registration.
• The home is near:
• Where you work,
• Where you bank,
• The residence of one or more family members, and
• Recreational clubs or religious organizations of which you are a member.
You can exclude up to $250,000 of gain ($500,000 if married filing jointly) on the sale of your home if you meet the eligibility test.
Eligibility Step 1--Automatic Disqualification
Determine whether any of the automatic disqualifications apply. Your home sale isn't eligible for the exclusion if ANY of the following are true.
• You acquired the property through a like-kind exchange (1031 exchange), during the past 5 years. See Pub. 544, Sales and Other Dispositions of Assets.
• You are subject to expatriate tax. For more information about expatriate tax, see chapter 4 of Pub. 519, U.S. Tax Guide for Aliens.
If any of these are true, skip to Figuring Gain or Loss, later.
Eligibility Step 2--Ownership
Determine whether you meet the ownership requirement. If you owned the home for at least 24 months (2 years) during the last 5 years leading up to the date of sale (date of the closing), you meet the ownership requirement.
If you received Form 1099-S, Proceeds From Real Estate Transactions, the date of sale appears in box 1 of Form 1099-S.
If you didn't receive Form 1099-S, the date of sale is either the date the title transferred or the date the economic burdens and benefits of ownership shifted to the buyer, whichever date is earlier. In most cases, these dates are the same.
Eligibility Step 3--Residence
Determine whether you meet the residence requirement. If your home was your residence for at least 24 of the months you owned the home during the 5 years leading up to the date of sale, you meet the residence requirement. The 24 months of residence can fall anywhere within the 5-year period. It doesn't have to be a single block of time. All you need is a total of 24 months (730 days) of residence during the 5-year period.
If you were ever away from home, you need to determine whether that counts as time living at home or not. A vacation or other short absence counts as time you lived at home (even if you rented out your home while you were gone).
If you have a disability, and are physically or mentally unable to care for yourself, you only need to show that your home was your residence for at least 12 months out of the 5 years leading up to the date of sale. In addition, any time you spend living in a care facility (such as a nursing home) counts toward your residence requirement, so long as the facility has a license from a state or other political entity to care for people with your condition.
If you have more than one home, see Main Home, earlier.
If your home was destroyed or condemned, see Home Destroyed or Condemned--Considerations for Benefits, later.
If you work for the government as uniformed or intelligence personnel, or are with the Peace Corps, see Service, Intelligence, and Peace Corps Personnel, later.
Eligibility Step 4--Look-Back
Determine whether you meet the look-back requirement. If you didn't exclude gain for selling a home on your tax returns for the previous two years (and you don't intend to do so on any returns or amended returns for the past two years that aren't yet filed), you meet the look-back requirement.
Eligibility Step 5--Exceptions
Check to see if there is anything about your situation that could affect your answer to Eligibility Step 2--Ownership through Eligibility Step 4--Look-Back. You'll need to review Does Your Home Qualify--Details and Exceptions, later, if any of the following are true.
• A marriage, separation, divorce, or the death of a spouse occurred during the ownership of the home.
• The sale involved vacant land.
• What you sold was a "remainder interest" (such as ownership of a home in which another person has the right to live for the rest of his or her life).
• Your previous home was destroyed or condemned.
Eligibility Step 6--Review
Review your eligibility. If you meet the ownership, residence, and look-back requirements, your home sale qualifies for exclusion, skip to Figuring Gain or Loss, later.
If you didn't meet all the tests in Eligibility Step 1 through Eligibility Step 5, earlier, your home isn't eligible for the full maximum exclusion. However, you may still be eligible for partial exclusion if you can show the main reason you sold your home was a change in workplace location, health issues, or an unforeseeable event. See Does Your Home Qualify--Details and Exceptions below.
Does Your Home Qualify--Details and Exceptions
Partial Exclusion May Be Available
If you don't meet the eligibility test, you may still qualify for a partial exclusion of gain if you moved because of work, health, or an unforeseeable event.
You can qualify either by meeting a set of standard requirements (the "safe harbor" provisions) or by showing enough facts and circumstances to validate your claim.
Work-related move. You meet the standard requirements if any of the following happened during the time you owned and lived in the home you sold:
• You took or were transferred to a new job in a work location at least 50 miles farther from home than your old work location.
• You had no previous work location and you began a new job at least 50 miles from home.
• Either of the above is true of your spouse, a co-owner of the home, or anyone else for whom the home was his or her residence.
Health-related move. You meet the standard requirements if any of the following happened during the time you owned and lived in the home you sold.
• You moved to obtain, provide, or facilitate diagnosis, cure, mitigation, or treatment of disease, illness, or injury for yourself or a family member.
• You moved to obtain or provide medical or personal care for a family member suffering from a disease, illness, or injury.
• Family includes:
• Parent, grandparent, stepmother, stepfather;
• Child, grandchild, stepchild, adopted child, eligible foster child;
• Brother, sister, stepbrother, stepsister, half-brother, half-sister;
• Mother-in-law, father-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-law;
• Uncle, aunt, nephew, niece, or cousin.
• A doctor recommended a change in residence for you because you were experiencing a health problem.
• The above is true of your spouse, a co-owner of the home, or anyone else for whom the home was his or her residence.
Unforeseeable events. You meet the standard requirements if any of the following happened during the time you owned and lived in the home you sold.
• Your home was destroyed or condemned.
• Your home suffered a casualty loss because of a natural or man-made disaster or an act of terrorism. (It doesn't matter whether the loss is deductible on your tax return.)
• You, your spouse, a co-owner of the home, or anyone else for whom the home was his or her residence:
• Died;
• Became divorced or legally separated;
• Gave birth to two or more children from the same pregnancy;
• Became eligible for unemployment compensation;
• Became unable, because of a change in employment status, to pay basic living expenses for the household (including expenses for food, clothing, housing, medication, transportation, taxes, court-ordered payments, and expenses reasonably necessary for making an income).
• An event is determined to be an unforeseeable event in IRS published guidance.
Showing facts and circumstances. If your circumstances don't match any of the standard requirements described above but the primary reason for sale, based on facts and circumstances, is work-related, health-related, or unforeseeable. Important factors are:
• The situation causing the sale arose during the time you owned and used your property as your residence.
• You sold your home not long after the situation arose.
• You couldn't have reasonably anticipated the situation when you bought the home.
• You began to experience significant financial difficulty maintaining the home.
• The home became significantly less suitable as a main home for you and your family for a specific reason.
Married, Divorced, Widowed
Marriage. Married individuals may exclude up to $500,000 of gain if they file a joint return and neither spouse excluded gain on the sale of another home within a previous 2-year period. If one spouse meets the ownership requirement, both are considered to have met the requirement. See Eligibility Step 2--Ownership, earlier. However, each spouse must individually meet the residence requirement. See Eligibility Step 3--Residence, earlier.
Separation or divorce. You can count a home as your residence during any period when ALL of the following are true.
• You are a sole or joint owner.
• Your spouse or former spouse is allowed to live in it under a divorce or separation agreement.
• Your spouse or former spouse uses it as his or her residence (not just as a second home).
Home acquired through transfer from spouse. If your home was transferred to you by a spouse or ex-spouse (whether in connection with a divorce or not), you can count any time when your spouse owned the home as time when you owned it. However, you must meet the residence requirement on your own.
Death of spouse. If you sell your home after your spouse dies (within 2 years after your spouse dies), and you haven't remarried as of the sale date, you can count any time when your spouse owned the home as time you owned it, and any time when the home was your spouse's residence as time when it was your residence.
Vacant Land Next to Home
If you have vacant land adjacent to the land on which your home sits, you can only claim the sale of that land as part of a sale of your home if ALL of the following are true.
• You owned and used the vacant land as part of your home.
• The sale of the vacant land and the sale of your home happened within 2 years of each other.
• Both sales either meet the eligibility test or qualify for partial tax benefits as described earlier.
If your sale of vacant land meets all these requirements, you must treat that sale and the sale of your home as a single transaction for tax purposes.
Home Moved to New Location
If you move your home from the land it was on, that land no longer counts as part of your home. For example, if you move a mobile home to a new lot and sell the old lot, you can't treat the sale of the old lot as the sale of your home.
Home Destroyed or Condemned--Considerations for Benefits
If an earlier home of yours was destroyed or condemned, you may be able to count your time there towards the ownership and residence test.
If your home was destroyed, see Pub. 547, Casualties, Disasters, or Thefts. If your home was condemned, see Pub. 544.
Remainder Interest
If you sell a remainder interest in your home, the sale is eligible for tax benefits as long as the buyer isn't a "related person" (which can mean not only a relative but also a corporation, trust, or other organization that is closely connected to you).
If you take advantage of tax benefits when you sell a remainder interest, you can't receive tax benefits if you later sell any other type of interest in the same home.
Like-Kind/1031 Exchange
Sale of home acquired in a like-kind exchange. You can't claim the exclusion if:
• You acquired your home in a like-kind exchange (also known as a section 1031 exchange), or your basis in your home is determined by reference to the basis of the home in the hands of the person who acquired the property in a like-kind exchange (for example, you received the home from that person as a gift), and
• You sold the home during the 5-year period beginning with the date your home was acquired in the like-kind exchange.
Gain from a like-kind exchange isn't taxable at the time of the exchange. This means that gain won't be taxed until you sell or otherwise dispose of the property you receive. To defer gain from a like-kind exchange, you must have exchanged business or investment property for business or investment property of a like kind. For more information about like-kind exchanges, see Pub. 544.
Home relinquished in a like-kind exchange. The same tests that apply to determine if you qualify to exclude gain from the sale of your main home (discussed earlier) also apply to determine if you qualify to exclude gain from the exchange of your main home for another property. Under certain circumstances, you may meet the requirements for both the exclusion of gain from the exchange of a main home and the nonrecognition of gain from a like-kind exchange (discussed above under Sale of home acquired in a like-kind exchange). This also can occur if you used your property as your main home for a period before the exchange that meets the use test, but at the time of the exchange, you used your home for business or investment (e.g., rental) purposes. This can also occur if you used your main home partly for business or investment (e.g., rental) purposes and then exchanged the home. In these situations, you would first exclude the gain from the sale of your main home to the extent allowable, and then apply the nonrecognition of gain provisions of section 1031 for like-kind exchanges to defer any remaining gain. For more information, see Revenue Procedure 2005-14, 2005-7 I.R.B. 528, available at http://www.irs.gov/irb/2005-07_IRB/ar10.html.
Service, Intelligence, and Peace Corps Personnel
If you are a member of the Uniformed Services or the Foreign Service, or an employee of the intelligence community in the Unites States, you may choose to suspend the 5-year test period for ownership and use if you are on qualified official extended duty. This means you may be able to meet the 2-year residence test even if, because of your service, you didn't actually live in your home for at least the 2 years during the 5-year period ending on the date of sale.
Example. John bought and moved into a home in 2007. He lived in it as his main home for 2 1/2 years. For the next 6 years, he didn't live in it because he was on qualified official extended duty with the Army. He then sold the home at a gain in 2015. To meet the use test, John chooses to suspend the 5-year test period for the 6 years he was on qualified official extended duty. This means he can disregard those 6 years. Therefore, John's 5-year test period consists of the 5 years before he went on qualified official extended duty. He meets the ownership and use tests because he owned and lived in the home for 2 1/2 years during this test period.
Qualified extended duty. You are on qualified extended duty if:
• You are called or ordered to active duty for an indefinite period, or for a definite period of more than 90 days.
• You are serving at a duty station at least 50 miles from your main home, or you are living in government quarters under government orders.
• You are one of the following:
• A member of the armed forces (Army, Navy, Air Force, Marine Corps, Coast Guard);
• A member of the commissioned corps of National Oceanic and Atmospheric Administration (NOAA) or the Public Health Service;
• A Foreign Service chief of mission, ambassador-at-large, or officer;
• A member of the Senior Foreign Service or the Foreign Service personnel; or
• An employee, enrolled volunteer, or enrolled volunteer leader of the Peace Corps serving outside the United States.
• The Office of the Director of National Intelligence;
• The CIA or NSA;
• The Defense Intelligence Agency;
• The National Geospatial-Intelligence Agency;
• The National Reconnaissance Office and any other office within the Department of Defense for the collection of specialized national intelligence through reconnaissance;
• Any intelligence element of the Army, Navy, Air Force, Marine Corps, FBI, the Department of Treasury, the Department of Energy, or the Coast Guard;
• The Bureau of Intelligence and Research of the Department of State; or
• Any element of the Department of Homeland Security that analyzes foreign intelligence information.
Period of suspension. The period of suspension can't last more than 10 years. Together, the 10-year suspension period and the 5-year test period can be as long as, but no more than, 15 years. You can't suspend the 5-year period for more than one property at a time. You can revoke your choice to suspend the 5-year period at any time.
Example. Mary bought a home on May 1, 2000. She used it as her main home until August 27, 2003. On August 28, 2003, she went on qualified official extended duty with the Navy. She didn't live in the house again before selling it on August 1, 2016. Mary chooses to use the entire 10-year suspension period. Therefore, the suspension period would extend back from August 1, 2016, to August 2, 2006, and the 5-year test period would extend back to August 2, 2001. During that period, Mary owned the house all 5 years and lived in it as her main home from August 2, 2001, until August 28, 2003, a period of more than 24 months. She meets the ownership and use tests because she owned and lived in the home for at least 2 years during this test period.
To figure the gain or loss on the sale of your main home, you must know the selling price, the amount realized, and the adjusted basis. Subtract the adjusted basis from the amount realized to get your gain or loss.
Selling price
- Selling expenses
---------------------
Amount realized
- Adjusted basis
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Gain or loss
Gain. Gain is the excess of the amount realized over the adjusted basis of the property.
Loss. Loss is the excess of the adjusted basis over the amount realized for the property.
See How To Figure Your Gain or Loss Worksheet, later, for steps you should follow to figure your gain or loss.
How To Figure Your Gain or Loss Worksheet
The process is the same for single family homes, condominiums, mobile
homes, and all other types of homes. If you have questions as you work
through these step-by-step instructions, or want examples of costs
that can and can't be included, see Basis Adjustments--Details
and Exceptions, later.
• If married and filing jointly, figure gain or loss for both of you
together.
• If not filing jointly, or if there are two owners who aren't
married, you will need a gain or loss figure for each
individual. If ownership is joint, or is shared 50/50, the figure
for each individual is half of the final gain or loss result
from this worksheet. If ownership is divided according to different
percentages, each owner's figure is the gain or loss
result from this worksheet multiplied by his or her ownership
percentage.
• If you used any portion of the property for business or rented it
out, go to Business or Rental Use of Home.
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1. Determine the sale price. This is everything you received for
selling your home.
a. All money (currency, check, wire transfer) a. ______
b. The value of any notes, mortgages, or other debts
that the buyer agreed to assume (take over) as part
of the sale b. ______
c. Any real estate taxes the buyer paid on your behalf c. ______
d. The fair market value of any other property or
services you received d. ______
e. Any amount you received for granting an option to
buy your home, if the option was exercised e. ______
f. Add lines 1a through 1e. This is your sale price f.
======
• If you received payment for personal property,
DON'T include it in the sale price (examples:
furniture, draperies, rugs, washer and dryer,
and lawn equipment).
• If you received payment or reimbursement from your
employer because of a job transfer, DON'T include
the payment as part of the selling price. Your
employer will include it as wages in box 1 of your
Form W-2.
• If you received Form 1099-S, the gross proceeds for
the sale price should appear in box 2. If box 4 is
checked, the sale price included non-cash payments,
and you need to determine the value of these and
add them to the figure in box 2.
• If you didn't receive Form 1099-S, refer to your
real estate transaction documents for the total
amount you received for your home.
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2. Determine your selling expenses. These are the costs directly
associated with selling your home.
a. Any sales commissions (for example, a real estate
agent's sales commission) a. ______
b. Any fees for a service that helped you sell your
home without a broker b. ______
c. Any advertising fees c. ______
d. Any legal fees d. ______
e. Any mortgage points or other loan charges you paid
that would normally have been the buyer's
responsibility e. ______
f. Add lines 2a through 2f. These are your selling
expenses f.
======
• If you received payment or reimbursement from your
employer, subtract from the selling expenses any
portion of these expenses your employer paid or
reimbursed to you.
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3. Figure your "amount realized" (sale price minus selling expenses).
a. Your sale price (line 1f) a. ______
b. Subtract your selling expenses (line 2f) b. ______
c. This is your amount realized c. ______
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4. Determine your "total basis" (the total amount you invested in your
home). This includes what you paid for your home as well as other
money you may have put into it that added to its value.
a. The amount you paid for your home (or if you built
your home, the cost of the land). Include any down
payment and any amount you borrowed to pay for the
home, such as a first or second mortgage, or notes
you gave the seller in payment for the home. For
cooperative apartments, include the value of the
corporation stock you purchased. If you acquired
your home through inheritance, gift, bargain sale,
trade, or anything except a fair market purchase,
see Basis Adjustments -- Details and Exceptions,
later a. ______
b. Any settlement fees or closing costs you paid when
you bought your home, except for financing-related
costs (such as seller-paid points). A fee paid for
buying the home is any fee you would have had to pay
even if you paid cash for the home. See Basis
Adjustments -- Details and Exceptions and Fees and
Closing Costs b. ______
c. Any real estate taxes or other costs you paid on
behalf of the seller you bought your home from (and
for which the seller never paid you back) c. ______
d. Any amounts you spent on construction, renovation,
or other improvements that are still part of your
home when you sell it, but not costs of repairs
and maintenance. See Basis Adjustments -- Details
and Exceptions, later d. ______
e. Any amounts you spent to repair damage to your home
or the land it sits on e. ______
f. Any special assessments for local improvements (such
as special tax or condominium association assessments
that aren't merely for repairs or maintenance) f. ______
g. Add lines 4a through 4f. This is your total basis g.
======
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5. Determine your "basis adjustments" (any payments, credits, or
benefits you may need to deduct from your basis).
a. Any depreciation you took for using your home as a
home office a. ______
b. Any depreciation you took -- or didn't take but could
have taken -- for any business or investment (rental)
use of your home other than home office use b. ______
c. Any casualty losses (such as flood or fire damage)
you claimed as a deduction on a federal tax return c. ______
d. Any insurance payments you received or expect to
receive for casualty losses d. ______
e. Any payments you received for granting an easement,
conservation restriction, or right-of-way e. ______
f. Any energy credits or subsidies that effectively
paid you back for improvements you included in your
total basis. See Basis Adjustments -- Details and
Exceptions, later f. ______
g. Any adoption credits you claimed, or any nontaxable
payments from an employer-sponsored adoption
assistance program, you used for improvements you
included in your total basis g. ______
h. Any District of Columbia first-time homebuyer credit
you claimed h. ______
i. Any real estate taxes the seller paid on your behalf
(and for which you never paid the seller back). If
you reimburse the seller, it doesn't affect basis i. ______
j. Any mortgage points the seller paid for you when you
bought your home, but only if one of the following
is true j. ______
• You bought your home sometime between January 1,
1991 and April 3, 1994 (including those days) AND
you deducted the points as home mortgage interest
in the year they were paid, or
• You bought your home after April 3, 1994 (whether
you deducted the points or not).
k. Any canceled or forgiven mortgage debt amount that
was excluded due to a bankruptcy or insolvency and
you didn't have to declare as income. For more
information, see Pub. 4681 k. ______
l. Any sales tax you paid on your home (such as for a
mobile home or houseboat) and then claimed as a
deduction on a federal tax return l. ______
m. The value of any temporary housing the builder of
your home provided for you m. ______
• Use this equation:
Contract price × Value of temporary housing ÷
(Value of temporary housing + Value of new home)
n. Any gain you postponed from a home you sold before
May 7, 1997 n. ______
o. Add lines 5a through 5n. This is your basis
adjustment o.
======
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6. Figure your "adjusted basis" (total basis minus basis adjustments).
a. Your total basis (line 4g) a. ______
b. Subtract your basis adjustments (line 5o) b. ______
c. This is your adjusted basis c.
======
• If your adjusted basis is less than zero and you
went through a mortgage workout or other process
resulting in forgiveness or cancellation of
mortgage debt ("discharge of qualified principal
residence indebtedness"), don't count any portion
of your canceled debt that is bringing your basis
below zero.
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7. Figure your gain or loss (amount realized minus adjusted basis).
a. Your amount realized (line 3c) a. ______
b. Subtract your adjusted basis (line 6c) b. ______
c. This is your gain or loss c.
======
• If the number is negative (adjusted basis is
greater than amount realized), you sold your home
at a loss. You can't deduct this loss, but you
don't need to pay any tax on the money you
received from selling your home. Skip to Reporting
Your Home Sale, later.
• If the number is positive, you sold your home at a
gain. Skip to How Much Is Taxable, later.
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Business or Rental Use of Home
Determine whether the space used for business during the 5 years before the sale is considered to be within your home or not. If the business or rental space was physically part of the living area of your home, such as a spare room used as a bed-and-breakfast bedroom or attic space used as a home office, your business usage doesn't affect your gain/loss calculations. Complete How To Figure Your Gain or Loss Worksheet.
If the business or rental space wasn't within your living space, such as a first-floor store with residence, an apartment with its own entrance (and kitchen and bath), or a working farm with a farmhouse on the property, continue to Determine whether the business or rental space still counts as a business space, next.
Determine whether the business or rental space still counts as a business space. A space formerly used for business is considered residence space if ALL of the following are true:
• You weren't using the space for business or rental at the time you sold the property,
• You didn't earn any business or rental income from the space in the year you sold your home, and
• You used the space as residence space for 2 years out of the 5 years leading up to the sale.
If all of these are true, your business usage DOESN'T affect your gain/loss calculations. Complete How To Figure Your Gain or Loss Worksheet and then go to How Much Is Taxable, later.
For more information about using any part of your home for business or renting it to someone, see Pub. 587, Business Use of Your Home, and Pub. 527, Residential Rental Property.
Do you need to calculate your business and residence portions separately? If ANY of the three bullets in Determine whether the business or rental space still counts as a business space, earlier, ISN'T true, you need to make separate gain/loss calculations for the business and residence portions of your property. Continue to Make three copies of all pages of How To Figure Your Gain or Loss Worksheet, next.
Make three copies of all pages of How To Figure Your Gain or Loss Worksheet. Label one copy "Total," one copy "Home," and one copy "Business or Rental."
Complete your "Total" worksheet using the figures for your property as a whole. Include the total amount you received, all of your basis adjustments, etc. Include the cost of all improvements, whether you made them to the business space or the residential space.
Determine your "business or rental percentage." This is the percentage of your property that is considered to have been used for business or rental.
If you took depreciation on your home on past tax returns, use the same business or rental percentage that you used in determining how much depreciation to take.
If you DIDN'T take depreciation on your home on past tax returns, compare the size of your business or rental space to the size of the whole property and express this as a percentage. For example, if you have a building with 3 equal-sized stories, and you live in the top 2 stories and use the ground floor for a store, then you are using 1/3 of the property. Your business percentage is 33.3%.
Determine the business or rental portion of each number on your "Total" worksheet. For each number on your "Total" worksheet, calculate the business-related portion of that number and enter it on your "Business or Rental" worksheet.
Note that you may use different methods to determine the business portion of different numbers. Here are the three possible methods and the circumstances under which each method applies.
• Dollar-amount method. Where a figure consists of specific dollar amounts that relate to either the residence portion or the business portion of the property, the figure must be broken down by these dollar amounts. For example, if the figure for improvements to the property was $100,000, and all of that applied to the residence portion, then the business portion of the improvements would be zero.
• "100% rule" for depreciation. The first two items under Determine your "basis adjustments" (any payments, credits, or benefits you may need to deduct from your basis) in How To Figure Your Gain or Loss Worksheet, earlier, are business depreciation items. Any figure for these two items is 100% a business figure.
• Percentage method. Where a figure applies to the property as a whole (such as the sale price), the business or rental portion is the figure multiplied by the business portion percentage you calculated in Determine your "business or rental percentage", earlier. Use the percentage method for all items that don't require the dollar-amount or depreciation methods.
If you are unsure how to apply a percentage, simply take the percentage number, move the decimal point 2 spaces to the left, and multiply by the number you are taking a percentage of. For example, to figure 25% of $20,000, you would do this: 0.25 × $20,000 = $5,000.
Calculate the totals on your "Business" worksheet. The total you get on line 7c, under How To Figure Your Gain or Loss Worksheet, earlier, on your "Business" worksheet is the gain or loss related to the business or rental portion of the property you sold.
Complete your "Home" worksheet. For each number, take the number from your "Total" worksheet, subtract the number from your "Business or Rental" worksheet, and enter the result in your "Home" worksheet.
Now calculate the totals on your "Home" worksheet. The total you get on line 7c, under How To Figure Your Gain or Loss Worksheet, earlier, on your "Home" worksheet is the gain or loss related to the home portion of the property you sold.
Review the results of your "Home" and "Business" worksheets to determine your next step. When you have completed each worksheet, you will know whether you have a gain or loss on each part of your property. It is possible to have a gain on both parts, a loss on both parts, or a gain on one part and a loss on the other.
See Table--Does Your Home or Business Show a Gain or a Loss to determine your next steps.
Table--Does Your Home or Business Show a Gain or a Loss
----------------------------------------------------------------------
IF . . . SHOWS . . . THEN . . .
----------------------------------------------------------------------
your "Home" a loss, follow the instructions at the
worksheet end of line 7c, under How To
Figure Your Gain or Loss
Worksheet, earlier, for "If the
number is negative."
----------------------------------------------------------------------
your "Home" a gain, skip to How Much Is Taxable,
worksheet later, to find out how much of
the gain on your "Home"
worksheet is taxable.
----------------------------------------------------------------------
your "Business" a loss, DON'T follow the instructions
worksheet at the end of line 7c, under
How To Figure Your Gain or Loss
Worksheet, earlier. Instead,
report the loss from your
"Business" worksheet on
Form 4797, Sales of Business
Property.
----------------------------------------------------------------------
your "Business" a gain AND you you can't get tax benefits for
worksheet DIDN'T meet the any of the gain shown on your
2-year residence "Business" worksheet. DON'T
test for the follow the instructions at the
business/rental end of line 7c, under How To
part of your home, Figure Your Gain or Loss
Worksheet, earlier. Instead,
report the gain from your
"Business" worksheet on
Form 4797.
----------------------------------------------------------------------
your "Business" a gain AND you DID skip to How Much Is Taxable,
worksheet meet the 2-year later, to find out how much of
residence test for the gain on your "Business"
the business/rental worksheet is taxable.
part of your home,
----------------------------------------------------------------------
Basis Adjustments--Details and Exceptions
You should include many, but not all, costs associated with the purchase and maintenance of your home in the basis of your home. For more information on determining basis, see Pub. 551, Basis of Assets.
Fees and Closing Costs
Some settlement fees and closing costs you can include in your basis are:
• Abstract fees (abstract of title fees),
• Charges for installing utility services,
• Legal fees (including fees for the title search and preparing the sales contract and deed),
• Recording fees,
• Survey fees,
• Transfer or stamp taxes, and
• Owner's title insurance.
Some settlement fees and closing costs you can't include in your basis are:
• Fire insurance premiums,
• Rent for occupancy of the house before closing,
• Charges for utilities or other services related to occupancy of the house before closing,
• Any fee or cost that you deducted as a moving expense (allowed for certain fees and costs before 1994),
• Charges connected with getting a mortgage loan, such as:
• Mortgage insurance premiums (including funding fees connected with loans guaranteed by the Department of Veterans Affairs),
• Loan assumption fees,
• Cost of a credit report,
• Fee for an appraisal required by a lender, and
• Fees for refinancing a mortgage.
Construction. If you contracted to have your house built on the land you own, your basis is:
• The cost of the land, plus
• The amount it cost you to complete the house, including:
• The cost of labor and materials,
• Any amounts paid to a contractor,
• Any architect's fees,
• Building permit charges,
• Utility meter and connection charges,
• Legal fees directly connected with building the house.
If you built all or part of your house yourself, its basis is the total amount it cost you to complete it. Don't include in the cost of the house:
• The value of your own labor, or
• The value of any other labor for which you didn't pay.
Costs owed by the seller that you paid. You can include in your basis any amounts the seller owes that you agree to pay (as long as the seller doesn't reimburse you), such as:
• Any real estate taxes owed up through the day before the sale date,
• Back interest owed by the seller,
• The seller's title recording or mortgage fees,
• Charges for improvements or repairs that are the seller's responsibility (for example, lead paint removal), and
• Sales commissions (for example, payment to the seller's real estate agent).
Improvements
These add to the value of your home, prolong its useful life, or adapt it to new uses. You add the cost of additions and improvements to the basis of your property.
The following chart lists some examples of improvements.
Examples of Improvements That Increase Basis
Keep for Your Records
----------------------------------------------------
Additions Systems
Bedroom Heating system
Bathroom Central air conditioning
Deck Furnace
Garage Duct work
Porch Central humidifier
Patio Central vacuum
Air/water filtration systems
Lawn & Grounds Wiring
Landscaping Security system
Driveway Lawn sprinkler system
Walkway
Fence
Retaining wall
Swimming pool
Exterior Plumbing
Storm windows/doors Septic system
New roof Water heater
New siding Soft water system
Satellite dish Filtration system
Insulation Interior
Attic Built-in appliances
Walls Kitchen modernization
Floors Flooring
Pipes and duct work Wall-to-wall carpeting
Fireplace
----------------------------------------------------
Repairs done as part of larger project. You can include repair-type work if it is done as part of an extensive remodeling or restoration job. For example, replacing broken windowpanes is a repair, but replacing the same window as part of a project of replacing all the windows in your home counts as an improvement.
Examples of improvements you CAN'T include in your basis. You can't include:
• Any costs of repairs or maintenance that are necessary to keeping your home in good condition but don't add to its value or prolong its life. Examples include painting (interior or exterior), fixing leaks, filling holes or cracks, or replacing broken hardware.
• Any costs of any improvements that are no longer part of your home (for example, wall-to-wall carpeting that you installed but later replaced).
• Any costs of any improvements with a life expectancy, when installed, of less than 1 year.
Exception. The entire job is considered an improvement if items that would otherwise be considered repairs are done as part of an extensive remodeling or restoration of your home. For example, if you have a casualty and your home is damaged, increase your basis by the amount you spend on repairs that restore the property to its pre-casualty condition.
Energy credits and subsidies. If you included in your basis the cost of any energy-related improvements (such as a solar energy system), and you received any tax credits or subsidies related to those improvements, you must subtract those credits or subsidies from your total basis. Examples include:
• 1977-1987. Credit for home energy improvements,
• 1992-present. Direct or indirect subsidy from a public utility for installations or modifications aimed at lowering a home's electricity or natural gas usage or better managing its energy demand,
• 2006-present. Credit for home energy efficiency improvements, and
• 2006-2007 and 2009-present. Credit for energy improvements to non-business properties.
Home Acquired Through a Trade
Traded for another home. When your home is traded for another home, it is treated like a sale of your home and a purchase of a new one. Your sale price is the trade-in value you received for your home plus any mortgage or other debt that the person taking your home as a trade-in assumed (took over) from you as part of the deal.
Traded for other property. If you paid for your home by trading other property for it, the starting basis of your home is usually the fair market value of the property you traded.
Home Foreclosed, Repossessed, or Abandoned
You may have ordinary income, gain, or loss. See Pub. 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.
If you used part of your home for business or rental purposes, see "Foreclosures and Repossessions" in chapter 1 of Pub. 544, for examples of how to figure gain or loss.
Home Destroyed or Condemned--Sale Price and Basis
You have a disposition when your home is destroyed or condemned and you receive other property or money in payment, such as insurance or a condemnation award. This is treated as a sale and you may be able to exclude all or part of any gain from the destruction or condemnation of your home. If your home was destroyed, see Pub. 547. If your home was condemned, see Pub. 544.
Home Received in Divorce
Home acquired after July 18, 1984. If your former spouse was the sole owner, your starting basis is the same as your former spouse's adjusted basis just before you received the home. If you co-owned the home with your spouse, add the adjusted basis of your spouse's half-share in the home to the adjusted basis of your own half-share to get your starting basis. (In most cases, the adjusted basis of the two half-shares will be the same.) The rules apply whether or not you received anything in exchange for the home.
Home acquired on or before July 18, 1984. Your starting basis will usually be the home's fair market value at the time you acquired it from your spouse or ex-spouse.
For more information, see Pub. 504, Divorced or Separated Individuals. If you or your spouse or ex-spouse lived in a community property state, see Pub. 555, Community Property.
Home Received as Gift
To determine your basis if you received your home as a gift, you will need to know most of the following.
• The adjusted basis of the person who gave it to you (the donor), and
• The home's fair market value at the time of the gift, as it was appraised for federal gift tax purposes (or for state gift tax purposes if the federal gift tax doesn't apply).
In some cases, you also will need to know how much federal gift tax was paid when you received the home.
If the donor's adjusted basis was more than the home's value, use the donor's adjusted basis as your basis. However, if you find this results in a loss in line 7c, under How To Figure Your Gain or Loss Worksheet, earlier, you are treated as having neither a gain nor a loss.
If the donor's adjusted basis was less than or equal to the home's value, your basis will depend on when you received the home.
Home received before 1977. Do the following calculations to find your basis:
1. Enter value of the home at the time of the
gift 1. ______
2. Enter total federal gift tax paid 2. ______
3. Enter donor's adjusted basis 3. ______
4. Add line 2 and line 3 4. ______
5. Enter the SMALLER of line 1 or line 4.
This is your basis 5. ______
Home received in 1977 or later. Do the following calculations to find your basis.
1. Enter value of the home at the time of
the gift 1. ______
2. Enter donor's adjusted basis 2. ______
3. Enter any annual exclusion and marital
or charitable deduction applied to the
gift 3. ______
4. Federal gift tax paid on gift 4. ______
5. Subtract line 2 from line 1 5. ______
6. Subtract line 3 from line 1 6. ______
7. Divide line 4 by line 5 7. ______
8. Multiply line 7 by line 4 8. ______
9. Add line 2 and line 8. This is
your basis 9. ______
Home Inherited
Home acquired from a decedent who died before or after 2010. If you inherited your home from a decedent who died before or after 2010, your basis is the fair market value of the property on the date of the decedent's death (or the later alternate valuation date chosen by the personal representative of the estate). If an estate tax return was filed or required to be filed, the value of the property listed on the estate tax return is your basis. If a federal estate tax return didn't have to be filed, your basis in the home is the same as its appraised value at the date of death, for purposes of state inheritance or transmission taxes.
Surviving spouse. If you are a surviving spouse and you owned your home jointly, your basis in the home will change. The new basis for the interest your spouse owned will be its fair market value on the date of death (or alternate valuation date). The basis in your interest will remain the same. Your new basis in the home is the total of these two amounts.
If you and your spouse owned the home either as tenants by the entirety or as joint tenants with right of survivorship, you will each be considered to have owned one-half of the home.
Example. Your jointly owned home (owned as joint tenants with right of survivorship) had an adjusted basis of $50,000 on the date of your spouse's death, and the fair market value on that date was $100,000. Your new basis in the home is $75,000 ($25,000 for one-half of the adjusted basis plus $50,000 for one-half of the fair market value).
Community property. In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), each spouse is usually considered to own half of the community property. When either spouse dies, the total fair market value of the community property becomes the basis of the entire property, including the part belonging to the surviving spouse. For this to apply, at least half the value of the community property interest must be includible in the decedent's gross estate, whether or not the estate must file a return.
For more information about community property, see Pub. 555, Community Property.
CAUTION: If you are selling a home in which you acquired an interest from a decedent who died in 2010, see Pub. 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, to determine your basis.
Determine if your home sale qualifies for the maximum exclusion
Generally, your home sale qualifies for the maximum exclusion, if all of the following conditions are true.
• You didn't acquire the property through a like-kind exchange in the past 5 years.
• You aren't subject to the expatriate tax.
• You owned the home for 2 of the last 5 years and lived in the home for 2 (1 if you are disabled) of the last 5 years leading up to the date of the sale.*
• You didn't declare gain from selling a home on your tax returns for the 2 years before the sale and don't intend to amend these returns to declare this gain.
• The sale doesn't involve the transfer of vacant land or a remainder interest.**
* If this condition isn't met, your home sale may qualify for a partial exclusion. The sale must involve one of the following events experienced by you, your spouse, or a co-owner: a work-related move, a health-related move, a death, a divorce, a pregnancy with multiple children, a change in employment status, a change in unemployment compensation eligibility, or other unusual event.
** The transfer of vacant land or of a remainder interest may qualify for the maximum exclusion, but special rules apply in those situations.
For a step-by-step guide to determining whether your home sale qualifies for the maximum exclusion, see Does Your Home Sale Qualify for Maximum Exclusion, above.
If you do qualify for an exclusion on your home sale, it is possible that all of your gain will be tax-free. However, some of it may be taxable, particularly if you sold your home at a significant profit or if you only qualify for reduced benefits. This section contains step-by-step instructions for figuring out how much of your gain is taxable. See How To Figure Your Taxable Gain or Loss Worksheet, later, for assistance in determining your taxable gain.
If you determined in Does Your Home Sale Qualify for Maximum Exclusion, earlier, that your home sale doesn't qualify for any exclusion (either full or partial), then your entire gain is taxable. If you don't have a gain, you owe no tax on the sale. In either case, you don't need to work through the How To Figure Your Taxable Gain or Loss Worksheet and you can skip to Reporting Your Home Sale, later.
How To Figure Your Taxable Gain or Loss Worksheet
If you completed "Business" and "Home" versions of your gain/loss
worksheet as described in Business or Rental Use of Home, earlier,
complete a version of the following worksheet for each, keeping in
mind these additional points.
• When the worksheet below talks about "your home," this means only
the part of the property that you're covering in that worksheet,
whether it is the "Home" worksheet or the "Business or Rental"
worksheet.
• Figure your tax benefit limit on the whole property and then divide
it between Home and Business based on the residence portion and
business portion percentages you calculated earlier.
----------------------------------------------------------------------
1. Start.
----------------------------------------------------------------------
a. Enter your gain from line 7c, under How To Figure
Your Gain or Loss Worksheet, earlier a. ______
2. Read the following tests carefully.
----------------------------------------------------------------------
• First test: You didn't use any part of your home
for business or rental after May 6, 1997.
• Second test: You, your spouse, or your former
spouse used your home as a main residence
continuously from January 1, 2009 until the date
of sale -- or if that isn't the case, and there
was a period of non-residence use, one of these
situations applies.
1. Any portion of the 5-year period ending on the
date of sale or exchange after the last date
you use the property as a main home (meaning
you owned and lived in the house for at least
2 years from the 5-year period ending on the
date of the sale).
2. You had a change in employment, a health
condition, or other "unforeseen circumstance"
described in Does Your Home Qualify -- Details
and Exceptions, earlier, and you moved out of
your home for not more than 2 years in total.
3. You or your spouse qualifies for the "stop the
clock" exception for certain military,
intelligence, and Peace Corps personnel
described in Service, Intelligence, and Peace
Corps Personnel, earlier.
If you don't meet BOTH tests, continue to line 3.
If you do meet BOTH tests, skip to line 4.
----------------------------------------------------------------------
3. Determine any taxable gain.
----------------------------------------------------------------------
a. Because you didn't meet both tests in line 2, read
the following tests carefully. Part of your gain
isn't eligible for exclusion.
• Did you qualify for depreciation? If you used all
or part of your home for business or rental
between May 6, 1997 and the date of sale, total
all the depreciation deductions you could have
taken because of that use, whether or not you took
them. If you have good records to show the IRS
didn't allow you to take that much depreciation,
total the amount you were actually allowed to
take. Keep in mind depreciation related to
business or rental use of your home before May 6,
1997 doesn't count.
Your total depreciation a. ______
b. Subtract line 3a from line 1a. If the result is less
than zero, enter -0- b. ______
c. Did you have non-residence gain? If there were times
after 2008 when neither you nor your spouse (or a
former spouse) used your home as a main residence,
and didn't meet the situations under the Second test,
above, do the following calculation:
(1) Enter the total number of days
after 2008 when neither you nor your
spouse (or former spouse) used the home
as a main residence. This is the
non-use days ______
(2) Enter the total number of days you
owned your home (counting all days, not
just days after 2008). This is the days
owned ______
(3) Divide the non-use days by the days
owned. Calculate to 3 decimal places.
This is your non-residence factor ______
Multiply line 3b by your non-residence factor. This
is your non-residence gain c.
======
For example, if you owned your home for 10 years
(3,650 days), didn't use it as your main residence
for 500 days after 2008, and had a $20,000 gain, your
calculation would look like this.
• Calculation of non-residence factor:
500 ÷ 3,650 = 0.137
• Calculation of non-residence gain:
$20,000 × 0.137 = $2,740
d. Add your total depreciation (line 3a) to your
non-residence gain (line 3c). You might have one but
not the other. See also Recapturing Depreciation.
This is your ineligible gain d. ______
----------------------------------------------------------------------
4. Determine gain eligible for exclusion.
----------------------------------------------------------------------
a. Enter your gain (from line 3b) a. ______
b. Subtract your non-residence gain (line 3c) b. ______
c. This is your gain eligible for exclusion c.
======
----------------------------------------------------------------------
5. Determine your exclusion limit.
----------------------------------------------------------------------
a. If you qualify for an exclusion (based on the
Eligibility Test, earlier), there are fixed dollar
limits on the amount of gain that can be excluded
from taxes. If you only qualify for partial
exclusion, the limit will be lower, and will depend
on your situation.
If you met the Eligibility Test, earlier, follow
these steps to determine your exclusion limit.
(1) If you aren't married (or are
married but filing a separate return),
your exclusion limit is $250,000.
(2) If you own your home jointly with
another person who isn't your spouse,
you and the other person each have an
exclusion limit of $250,000. To qualify
for this amount, you must each
independently meet all parts of the
Eligibility Test, earlier, except for
the ownership requirement. See
Determine whether you meet the
ownership requirement, earlier. (Only
one of you needs to meet the ownership
test.)
(3) If you are married and filing
jointly, the exclusion limit is usually
$500,000. To qualify for this full
amount, you must each independently
meet all parts of the Eligibility Test,
earlier, except for the ownership
requirement. See Determine whether you
meet the ownership requirement,
earlier. (Only one of you needs to meet
the ownership test.) If this isn't the
case, you will need to determine each
spouse's individual limit (as if you
weren't married) and add them together
to get your total exclusion as a couple.
Generally, this situation will arise
only if one person has lived in the
home longer than the other, or if one
spouse took an exclusion on a different
home within the past 2 years.
If you owned your home jointly with your spouse and
your spouse has died, your exclusion limit is
$500,000, if ALL of the following are true.
• Your spouse died no more than 2 years before the
date of sale.
• Neither you nor your spouse claimed an exclusion
on another home during the 2 years before your
spouse died.
• You meet the 2-year residence requirement
independently of your spouse.
• You meet the 2-year ownership requirement
(counting your spouse's ownership if you need to).
• You haven't remarried at the time of sale.
If ANY of these AREN'T true, your exclusion limit is
$250,000.
This is your exclusion limit a.
======
b. If you didn't meet the Eligibility Test, earlier, but
DO qualify for a partial exclusion, take the smallest
of:
• The number of days (or months, if you prefer) your
home was your residence during the 5-year period
leading up to the sale.
• The number of days (or months) you owned the home
leading up to the sale. (If you are married and
filing jointly and your spouse owned the home
longer than you did, use your spouse's ownership
period.)
• If you claimed an exclusion on another home within
the last 2 years, the number of days (or months
between the date when you sold the home and the
date for which you now want to claim an
exclusion).
• Enter the smallest from above ______
• Divide by 730 days (or 24 months); calculate to 3
decimal places. If the result is less than 1,
enter the result. If the result is greater than 1,
enter "1" ______
• Multiply by $250,000 × 250,000
If you aren't married and filing jointly, this is
your exclusion limit b.
======
• If you are married and filing jointly, repeat the
entire calculation for your spouse, again using
$250,000 as your spouse's exclusion limit. Then
add your spouse's partial exclusion limit to your
own.
c. If you are married and filing jointly, this is your
exclusion limit c.
======
----------------------------------------------------------------------
6. Determine your amount of exclusion.
----------------------------------------------------------------------
a. Your gain eligible for exclusion (line 4c, or line 1a
if you met both tests in line 2) a. ______
b. Your exclusion limit (line 5a, 5b, or 5c) b. ______
c. Your exclusion is the smaller of line 6a or 6b c. ______
----------------------------------------------------------------------
Recapturing Depreciation
If you used all or part of your home for business or rental after May 6, 1997, you may need to pay back ("recapture") some or all of the depreciation you were entitled to take on your property. "Recapturing" depreciation means you must include it as ordinary income on your tax return.
Determine any depreciation amounts you may need to recapture
1. Enter your taxable gain from line 3d
under How To Figure Your Taxable Gain
or Loss Worksheet 1. ______
2. Enter your total depreciation from
line 3a under How To Figure Your
Taxable Gain or Loss
Worksheet 2. ______
3. Enter the SMALLER of line 1 and line 2
here and on line 12 of the "Unrecaptured
Section 1250 Gain Worksheet" in the
instructions to Schedule D (Form 1040).
Follow the Schedule D instructions to
complete the process 3. ______
------------------------------------------------------
Reporting Your Home Sale
Once you've done the calculations described in this publication, you are ready to report them on your tax returns. This section tells you how, and also gives you information such as how to take deductions relating to your home sale and how to report other types of income (besides your gain) you may have received because of your home sale.
This section also covers special circumstances that apply to some home sellers.
TIP: What records to keep. Any time you buy real estate, you should keep records to document the property's adjusted basis. In general, keep these records until 3 years after the due date for your tax return for the year in which you sold your home.
Reporting Gain or Loss on Your Home Sale
Determine whether you need to report the gain from your home. You need to report the gain if ANY of the following is true.
• You have taxable gain on your home sale (or on the residential portion of your property if you made separate calculations for home and business) and don't qualify to exclude.
• You received a Form 1099-S. If so, you must report the sale even if you have no taxable gain to report.
• You wish to report your gain as a taxable gain even though some or all of it is eligible for exclusion. You may wish to do this if, for example, you plan to sell another property that qualifies as a home within the next two years, and that property is likely to have a larger gain. If you choose to report, rather than exclude, your taxable gain, you can go back later and undo that choice by filing an amended return, but only within 3 calendar years after the year of sale.
If NONE of the three bullets above is true, you don't need to report your home sale on your tax return. If you didn't make separate home and business calculations on your property, skip to Reporting Deductions Related to Your Home Sale, later.
If ANY of the three bullets above is true, skip to Determine whether your home sale is an installment sale, later.
If you made separate gain/loss calculations for business and residence portions of your property, you may have to use Form 4797 to report the sale of the business or rental part. See Business or Rental Use of Home, earlier.
Determine whether your home sale is an installment sale. If you finance the buyer's purchase of your home (you hold a note, mortgage, or other financial agreement), you probably have an installment sale. You may be able to report any gain you can't exclude on an installment basis. Use Form 6252, Installment Sale Income, to report the sale.
For more information, see Pub. 537, Installment Sales.
Report any interest you receive from the buyer. If the buyer is making payments to you over time (as when you provide seller financing), then you generally must report part of each payment as interest on your tax return. Report the interest as ordinary income on Form 1040, line 8a. If the buyer is using the property as a first or second home, also report the interest on Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends, to Form 1040 and provide the buyer's name, address, and social security number. There is a $50 penalty per requirement for failing to meet any of these requirements.
If either you or the buyer is a nonresident or resident alien who doesn't have and isn't eligible to get a social security number, an individual taxpayer identification number (ITIN) may be provided instead. If you don't have an ITIN, apply for one by filing Form W-7, Application for IRS Individual Taxpayer Identification Number.
Complete Form 8949, Sales and Other Dispositions of Capital Assets. Use Form 8949 to report gain from the sale or disposition of the personal use portion of your home if you can't exclude the gain.
TIP: If you have gain that can't be excluded, you generally must report it on Form 8949, Sales and Other Dispositions of Capital Assets, and Schedule D (Form 1040), Capital Gains and Losses. Report the sale on Part I or Part II of Form 8949 as a short-term or long-term transaction, depending on how long you owned the home. For more information, see the Instructions for Form 8949.
Complete Schedule D (Form 1040), Capital Gains and Losses. Using the information on Form 8949, report on Schedule D (Form 1040) the gain or loss on your home as a captial gain or loss. Follow the Instructions for Schedule D when completing the form. Note you won't be able to use Form 1040EZ, Income Tax Return for Single and Joint Filers With No Dependents, for your return.
If you have any taxable gain from the sale of your home, you may have to increase your withholding or make estimated tax payments. See Pub. 505, Tax Withholding and Estimated Tax.
Reporting Deductions Related to Your Home Sale
If you aren't itemizing deductions on your return for the year in which you sold your home, skip to Reporting Other Income Related to Your Home Sale, later.
Note there is no tax deduction for transfer taxes, stamp taxes, or other taxes, fees, and charges you paid when you sold your home. However, you can treat these taxes and fees as selling expenses as described in line 1 under How To Figure Your Gain or Loss Worksheet, earlier. If you pay these amounts as the buyer, include them in your cost basis of the property.
Determine the amount of real estate tax deductions associated with your home sale. Follow the instructions under If you didn't receive a Form 1099-S, later. If you aren't itemizing deductions on your return for the year in which you sold your home, skip to Reporting Other Income Related to Your Home Sale, later.
If you didn't receive a Form 1099-S, use the following method to compute your real estate tax deduction, which can sometimes be different from the amount of real estate tax you actually paid.
• Take the amount of real estate tax due on your home for the 12-month tax billing cycle that contains your date of sale. Depending on your town or county's tax billing cycle, this 12-month period may or may not be a calendar year.
• Take the number of days you owned the property during the year of sale, not counting the date of sale, and divide it by 365 (or 366 for a leap year).
• Express the result as a decimal calculated to 3 places.
• Multiply the annual real estate tax (as you computed it in the first bullet point) by this decimal. The result is the amount of real estate tax you can deduct as an itemized deduction.
Example. The tax on Dennis and Beth White's home was $620 for the year. Their real property tax year was the calendar year, with payment due August 3, 2016. They sold the home on May 6, 2016. Dennis and Beth are considered to have paid a proportionate share of the real estate taxes on the home even though they didn't actually pay them to the taxing authority.
Dennis and Beth owned their home during the 2016 real property tax year for 126 days (January 1 to May 5, the day before the sale). They figure their deduction for taxes as follows.
1. Total real estate taxes for the real property tax year $620
2. Number of days in the real property tax year that you
owned the property 126
3. Divide line 2 by 365 (366 if leap year) 0.344
------
4. Multiply line 1 by line 3. This is your deduction.
Enter it on line 6 of Schedule A (Form 1040) $213
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Since the buyers paid all of the taxes, Dennis and Beth also include the $213 in the home's selling price. The buyers add the $213 to their basis in the home. The buyers can deduct $407 ($620 - $213) as an itemized deduction, the taxes for the part of the year they owned the home.
If you received a Form 1099-S, start with the amount of real estate tax you actually paid in the year of sale. Subtract the buyer's share of real estate tax as shown in box 5. The result is the amount you can deduct as an itemized deduction.
If you didn't already deduct all your mortgage points on an earlier tax return, you may be able to deduct them on your tax return for the year of sale. See Pub. 936, Home Mortgage Interest Deduction.
Report on Schedule A (Form 1040), Itemized Deductions, any itemized real estate deduction. Follow the Instructions for Schedule A when completing the form.
Reporting Other Income Related to Your Home Sale
Report as ordinary income on Form 1040 any amounts received from selling personal property. This includes any payments you received for furniture, drapes, lawn equipment, a washer/dryer, or any other property you sold that wasn't a permanent part of your home. The selling price of your home doesn't include amounts you received for personal property sold with your home.
Report as ordinary income on Form 1040 any amounts received for sales of expired options to purchase your property. If you granted someone an option to buy your home and it expired in the year of sale, report the amount you received for the option as ordinary income. Report this amount on Form 1040, line 21 or 1040NR, line 21.
Report as ordinary income on Form 1040 applicable canceled or forgiven mortgage debt. If you went through a mortgage workout, foreclosure, or other process in which a lender forgave or canceled mortgage debt on your home, the amount of debt that was forgiven or canceled must normally be reported as income on your tax return. However, you can exclude up to $2 million of canceled or forgiven debt ($1 million if you are single or if you are married and filing separately) from your income if ALL of the following are true.
• The debt was taken out to buy, build, or substantially improve your main residence. If you have more than one residence, see Does Your Home Qualify--Details and Exceptions, earlier, to determine which is your main residence.
• The debt was secured by your main residence.
• The loan amount (amount of principal), not counting interest, didn't exceed the cost of your main residence plus improvements.
• The debt was canceled or forgiven because the value of your home declined or your financial circumstances worsened.
If you qualify to exclude canceled or forgiven mortgage debt on your home, file Form 982 with your tax return.
Paying Back Credits and Subsidies
If you received any homebuyer credits or federal mortgage subsidies, you may have to pay back ("recapture") some or all of the amount by increasing your tax payment.
Determine any amounts you may have claimed as a first-time homebuyer tax credit.
• If you bought your home in 2008, you must pay back the credit unless you qualify for an exception.
• If you bought your home in 2011, you may have to pay back the credit if the home was destroyed or you sold it through condemnation or under threat of condemnation in 2014.
See Form 5405, Repayment of the First-Time Home-buyer Credit, to find out how much to pay back, or if you qualify for any exceptions. If you do have to repay the credit, file Form 5405 with your tax return.
Determine any amounts you may have received in federal mortgage subsidies in the 9 years leading up to the date of sale. If you financed your home under a federally subsidized program (loans from tax-exempt qualified mortgage bonds or loans with mortgage credit certificates), you may have to recapture all or part of the benefit you received from that program when you sell or otherwise dispose of your home. You recapture the benefit by increasing your federal income tax for the year of the sale. You may have to pay this recapture tax even if you can exclude your gain from income under the rules discussed earlier; that exclusion doesn't affect the recapture tax.
See Form 8828, Recapture of Federal Mortgage Subsidy, to find out how much to repay, or whether you qualify for any exceptions.
If you didn't receive any federal mortgage subsidies, you must file Form 8828 with your tax return whether you sold your home at a loss or a gain. If you had a loss, you won't have to pay back any subsidy.
If you have questions about a tax issue, need help preparing your tax return, or want to download free publications, forms, or instructions, go to IRS.gov and find resources that can help you right away.
Preparing and filing your tax return. Find free options to prepare and file your return on IRS.gov or in your local community if you qualify.
The Volunteer Income Tax Assistance (VITA) program offers free tax help to people who generally make $54,000 or less, persons with disabilities, the elderly, and limited-English-speaking taxpayers who need help preparing their own tax returns. The Tax Counseling for the Elderly (TCE) program offers free tax help for all taxpayers, particularly those who are 60 years of age and older. TCE volunteers specialize in answering questions about pensions and retirement-related issues unique to seniors.
You can go to IRS.gov and click on the Filing tab to see your options for preparing and filing your return which include the following.
• Free File. Go to IRS.gov/freefile. See if you qualify to use brand-name software to prepare and e-file your federal tax return for free.
• VITA. Go to IRS.gov/vita, download the free IRS2Go app, or call 1-800-906-9887 to find the nearest VITA location for free tax preparation.
• TCE. Go to IRS.gov/tce, download the free IRS2Go app, or call 1-888-227-7669 to find the nearest TCE location for free tax preparation.
Getting answers to your tax law questions. On IRS.gov get answers to your tax questions anytime, anywhere.
• Go to IRS.gov/help or IRS.gov/letushelp pages for a variety of tools that will help you get answers to some of the most common tax questions.
• Go to IRS.gov/ita for the Interactive Tax Assistant, a tool that will ask you questions on a number of tax law topics and provide answers. You can print the entire interview and the final response for your records.
• Go to IRS.gov/pub17 to get Pub. 17, Your Federal Income Tax for Individuals, which features details on tax-saving opportunities, 2016 tax changes, and thousands of interactive links to help you find answers to your questions. View it online in HTML or as a PDF or, better yet, download it to your mobile device to enjoy eBook features.
• You may also be able to access tax law information in your electronic filing software.
Getting tax forms and publications. Go to IRS.gov/forms to view, download, or print all of the forms and publications you may need. You can also download and view popular tax publications and instructions (including the 1040 instructions) on mobile devices as an eBook at no charge. Or, you can go to IRS.gov/orderforms to place an order and have forms mailed to you within 10 business days.
Using direct deposit. The fastest way to receive a tax refund is to combine direct deposit and IRS e-file. Direct deposit securely and electronically transfers your refund directly into your financial account. Eight in 10 taxpayers use direct deposit to receive their refund. IRS issues more than 90% of refunds in less than 21 days.
Delayed refund for returns claiming certain credits. Due to changes in the law, the IRS can't issue refunds before February 15, 2017, for returns that claim the earned income credit (EIC) or the additional child tax credit (ACTC). This applies to the entire refund, not just the portion associated with these credits.
Getting a transcript or copy of a return. The quickest way to get a copy of your tax transcript is to go to IRS.gov/transcripts. Click on either "Get Transcript Online" or "Get Transcript by Mail" to order a copy of your transcript. If you prefer, you can:
• Order your transcript by calling 1-800-908-9946.
• Mail Form 4506-T or Form 4506T-EZ (both available on IRS.gov).
Using online tools to help prepare your return. Go to IRS.gov/tools for the following.
• The Earned Income Tax Credit Assistant (IRS.gov/eic) determines if you are eligible for the EIC.
• The Online EIN Application (IRS.gov/ein) helps you get an employer identification number.
• The IRS Withholding Calculator (IRS.gov/w4app) estimates the amount you should have withheld from your paycheck for federal income tax purposes.
• The First Time Homebuyer Credit Account Look-up (IRS.gov/homebuyer) tool provides information on your repayments and account balance.
• The Sales Tax Deduction Calculator (IRS.gov/salestax) figures the amount you can claim if you itemize deductions on Schedule A (Form 1040), choose not to claim state and local income taxes, and you didn't save your receipts showing the sales tax you paid.
Resolving tax-related identity theft issues.
• The IRS doesn't initiate contact with taxpayers by email or telephone to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.
• Go to IRS.gov/idprotection for information and videos.
• If your SSN has been lost or stolen or you suspect you are a victim of tax-related identity theft, visit IRS.gov/id to learn what steps you should take.
Checking on the status of your refund.
• Go to IRS.gov/refunds.
• Due to changes in the law, the IRS can't issue refunds before February 15, 2017, for returns that claim the EIC or the ACTC. This applies to the entire refund, not just the portion associated with these credits.
• Download the official IRS2Go app to your mobile device to check your refund status.
• Call the automated refund hotline at 1-800-829-1954.
Making a tax payment. The IRS uses the latest encryption technology to ensure your electronic payments are safe and secure. You can make electronic payments online, by phone, and from a mobile device using the IRS2Go app. Paying electronically is quick, easy, and faster than mailing in a check or money order. Go to IRS.gov/payments to make a payment using any of the following options.
• IRS Direct Pay: Pay your individual tax bill or estimated tax payment directly from your checking or savings account at no cost to you.
• Debit or credit card: Choose an approved payment processor to pay online, by phone, and by mobile device.
• Electronic Funds Withdrawal: Offered only when filing your federal taxes using tax preparation software or through a tax professional.
• Electronic Federal Tax Payment System: Best option for businesses. Enrollment is required.
• Check or money order: Mail your payment to the address listed on the notice or instructions.
• Cash: If cash is your only option, you may be able to pay your taxes at a participating retail store.
What if I can't pay now? Go to IRS.gov/payments for more information about your options.
• Apply for an online payment agreement (IRS.gov/opa) to meet your tax obligation in monthly installments if you can't pay your taxes in full today. Once you complete the online process, you will receive immediate notification of whether your agreement has been approved.
• Use the Offer in Compromise Pre-Qualifier (IRS.gov/oic) to see if you can settle your tax debt for less than the full amount you owe.
Checking the status of an amended return. Go to IRS.gov and click on Where's My Amended Return? (IRS.gov/wmar) under the "Tools" bar to track the status of Form 1040X amended returns. Please note that it can take up to 3 weeks from the date you mailed your amended return for it show up in our system and processing it can take up to 16 weeks.
Understanding an IRS notice or letter. Go to IRS.gov/notices to find additional information about responding to an IRS notice or letter.
Contacting your local IRS office. Keep in mind, many questions can be resolved on IRS.gov without visiting an IRS Tax Assistance Center (TAC). Go to IRS.gov/letushelp for the topics people ask about most. If you still need help, IRS TACs provide tax help when a tax issue can't be handled online or by phone. All TACs now provide service by appointment so you'll know in advance that you can get the service you need without waiting. Before you visit, go to IRS.gov/taclocator to find the nearest TAC, check hours, available services, and appointment options. Or, on the IRS2Go app, under the Stay Connected tab, choose the Contact Us option and click on "Local Offices."
Watching IRS videos. The IRS Video portal (IRSvideos.gov) contains video and audio presentations for individuals, small businesses, and tax professionals.
Getting tax information in other languages. For taxpayers whose native language isn't English, we have the following resources available. Taxpayers can find information on IRS.gov in the following languages.
• Spanish (IRS.gov/spanish).
• Chinese (IRS.gov/chinese).
• Vietnamese (IRS.gov/vietnamese).
• Korean (IRS.gov/korean).
• Russian (IRS.gov/russian).
The IRS TACs provide over-the-phone interpreter service in over 170 languages, and the service is available free to taxpayers.
The Taxpayer Advocate Service Is Here To Help You
What is the Taxpayer Advocate Service?
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights under the Taxpayer Bill of Rights.
What Can the Taxpayer Advocate Service Do For You?
We can help you resolve problems that you can't resolve with the IRS. And our service is free. If you qualify for our assistance, you will be assigned to one advocate who will work with you throughout the process and will do everything possible to resolve your issue. TAS can help you if:
• Your problem is causing financial difficulty for you, your family, or your business,
• You face (or your business is facing) an immediate threat of adverse action, or
• You've tried repeatedly to contact the IRS but no one has responded, or the IRS hasn't responded by the date promised.
How Can You Reach Us?
We have offices in every state, the District of Columbia, and Puerto Rico. Your local advocate's number is in your local directory and at taxpayeradvocate.irs.gov. You can also call us at 1-877-777-4778.
How Can You Learn About Your Taxpayer Rights?
The Taxpayer Bill of Rights describes 10 basic rights that all taxpayers have when dealing with the IRS. Our Tax Toolkit at taxpayeradvocate.irs.gov can help you understand what these rights mean to you and how they apply. These are your rights. Know them. Use them.
How Else Does the Taxpayer Advocate Service Help Taxpayers?
TAS works to resolve large-scale problems that affect many taxpayers. If you know of one of these broad issues, please report it to us at IRS.gov/sams.
Low Income Taxpayer Clinics
Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals, and tax collection disputes. Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. To find a clinic near you, visit IRS.gov/litc or see IRS Publication 4134, Low Income Taxpayer Clinic List.
- Jurisdictions
- LanguageEnglish
