CAPITAL GAINS

Information on Selling Your Home

Selling a home can have a major impact on your federal tax return. You should check with your tax consultant on the factors that may affect taxes resulting from the sale of your home.

Real Estate Tax Effects

Unless you sell your home for exactly what you paid for it—an unlikely prospect—you have a gain or a loss on the sales transaction for your home. In general, a gain—sale price greater than purchase price—is taxable, but a loss—sale price less than purchase price—is not deductible. For tax purposes, your sale price and purchase price are complicated by selling expenses, closing costs, and amounts spent on improving the home while you owned it.

You can exclude $250,000 of capital gains (and thus not be taxed on it) if you owned and occupied the home as your principal residence for at least two of the last five years before the sale. For married couples filing jointly, the exclusion is $500,000. The exclusion applies to only one sale or exchange every two years.

You are no longer required to invest the cash proceeds from the sale of the old home into a new home. For example, you might use the cash from the sale of your old home to invest, go back to school, or whatever you like.

Even though many people, if not most, buy and sell several homes during their lifetime, you can continue to exclude the gains on all subsequent sales as long as you meet the three basic tests for exclusion—principal residence, two-year time period, and gain no greater than $250,000 ($500,000 on a joint return)—on each transaction.

Remember to consult a tax accountant or tax attorney if you need assistance with calculating your capital gains.