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The Top 3 Questions About Selling a Home

(posted: August 2nd, 2014)

Selling a home can be a complicated process. As CPAs who provide real estate services, we are asked many questions about selling a home and the impact on taxes. Here are three questions we often hear:

Do I have to Pay Taxes on the Income When I Sell My Home?

Generally speaking, you are eligible to exclude the gain from income if you have owned and used your home as your main home for two years out of the five years prior to the date of its sale. A few more points:

  • If you have a gain from the sale of your main home, then 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). The Net Investment Income Tax will not apply to the excluded gain.
  • You are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.
  • You cannot deduct a loss from the sale of your main home.
  • If you can exclude all of the gain, then you do not need to report the sale on your tax return.
  • If you have a gain that cannot be excluded, then it is taxable. You must report it on Form 1040, Schedule D, Capital Gains and Losses.

What if I Own More Than One Home?

If you have more than one home, then you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, then your main home is ordinarily the one you live in most of the time.

Do I Have to Repay the First-Time Homebuyer Tax Credit?

If you received the first-time homebuyer credit and within 36 months of the date of purchase the property is no longer used as your principal residence, then you are required to repay the credit. Repayment of the full credit is due with the income tax return for the year the home ceased to be your principal residence, using Form 5405, First-Time Homebuyer Credit and Repayment of the Credit. The full amount of the credit is reflected as additional tax on that year's tax return.

Remember, you are not alone! If you have other questions about selling your home, please contact us!

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