If you make a profit off of the sale of your home, the gain may not be taxable. The IRS has issued ten tax facts you should be aware of if you are selling your home this year:
1. As stated above, if you have a capital gain on the sale of your home, the gain may not be taxable. If the home you sell was used as your main home for at least two of the five years before the date you sold the home, this rule may apply.
2. There are however exceptions to the ownership and use rules. Some exceptions apply to individuals with disabilities, members of the military, and certain government and Peace Corps workers. For more information, see Publication 523, Selling Your Home.
3. The most gain on the sale of your home you can exclude from tax is $250,000. For joint returns, the limit you can exclude from tax is $500,000. The Net Investment Income Tax (i.e. interest, dividends, capital gains, rental and royalty income, and non-qualified annuities), will not apply to the excluded gain.
4. If the gain on the sale of your home is not taxable, you may not be required to report the sale to the IRS on your tax return.
5. If you cannot exclude all or part of the gain, you must report the sale of your home on your tax return. You must also report the sale if you choose not to claim the exclusion. You must also report the sale if you receive form 1099-S, Proceeds From Real Estate Transactions. If you are reporting the sale of your home on your tax return, review the IRS.gov Questions and Answers on the Net Investment Income Tax.
6. The gain from the sale of your main home can generally only be excluded once every two years.
7. As stated above, your main home is the home that you live in a majority of the time. If you own more than one home, you can only exclude the gain on the sale of your main home.
8. Special rules apply to the sale of your home if you claimed the first-time home-buyer credit when you purchased it. For more information on these rules, see Publication 523.
9. If you sell your main home at a loss, you cannot deduct it.
10. After you have sold your home and moved to a new address, be sure to provide the IRS with the new address information. The IRS can be notified by completing Form 8822, Change of Address.
For additional information on the sale of a home, see the IRS.gov Publication 523. Please feel free to contact our office with any questions or concerns.
Source: IRS Summertime Tax Tip 2014-08