People who sell their home may be able to exclude the gain from their income. Here are seven things every homeowner should know if they sold, or plan to sell their house.
1. Amount of exclusion. When you have gain from the sale of your home, you may be able to exclude up to $250,000 of the gain from your income. For most taxpayers filing a joint return, the exclusion amount is $500,000.
2. Ownership test. To claim the exclusion you must have owned the home for at least two years during the five year period ending on the date of the sale.
3.Use test. You also must have lived in the house and used it as your main home for at least two years during the five year period ending on the date of the sale.
4. When not to report. If you are able to exclude all of the gain from the sale of your home, you do not need to report the sale on your federal income tax return.
5. Reporting taxable gain. If you have gain which cannot be excluded, it is taxable and must be reported on your tax return using Schedule D.
6. Deducting a loss. You cannot deduct a loss from the sale of your home.
7. Rules for multiple homes. If you have more than one home, you may only exclude gain from the sale of your main home and must pay tax on the gain resulting from the sale of any other home. Your main home is generally the one you live in most of the time.