Tax Aspects of Home Ownership - Selling a Home

Though most home-sale profit is now tax-free, there are still steps you can take to maximize the tax benefits of selling your home. Learn how to figure your gain, factoring in basis, home improvements and more.


It might not matter at all. In fact, there's a good chance you won't even have to report the sale to the IRS because most home-sale profit is now tax-free.
Do I Have to Pay Taxes on the Profit I Made Selling My Home?
It depends on how long you owned and lived in the home before the sale and how much profit you made. If you owned and lived in the place for two of the five years before the sale, then up to $250,000 of profit is tax free. If you are married and file a joint return, up to $500,000 of the profit is tax free if you meet the ownership and residency tests. The law lets you "exclude" this much otherwise taxable profit from your taxable income. (If you sold for a loss, though, you cannot take a deduction for the loss.)
You can use this exclusion every time you sell a primary home, as long as you owned and lived in it for two of the five years leading up to the sale and haven't sold another home in the last two years.

If your profit exceeds the $250,000/$500,000 limit, the excess is reported as a capital gain on Schedule D.

How Do I Qualify for This Tax Break?
There are three tests you must meet in order to treat the gain from the sale of your main home as tax free:

Ownership: You must have owned the home for at least two years (730 days or 24 full months) during the five years prior to the date of your sale. It doesn't have to be continuous nor does it have to be the two years immediately preceding the sale. If you lived in a house for a decade as your primary home, then rented it out for two years prior to the sale, for example, you would still qualify under this test.
Use: You must have used the home you are selling as your principal residence for at least two of the five years prior to the date of sale.
Timing: You have not excluded the gain on the sale of another home within two years prior to this sale.

Also, if you're married:

You must file a joint return.
At least one spouse must meet the ownership requirement, and both you and your spouse must have lived in the house for two of the five years leading up to the sale.


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For More Information - good IRS site info with exmaplesFor information on the basis for figuring out whether you have a gain or loss on the sale of your home, see IRS Tax Topic 703: Basis of Assets. For general information on the sale of your home, see IRS Publication 523: Selling Your Home, and Tax Topic 701: Sale of Home.