Generally, you are required to include the gain from the sale of your home in your taxable income. However, if the gain is from your primary home, you may exclude up to $250,000 ($500,000 for married couples filing jointly) gain from income, if you meet certain requirements. This is referred to as maximum exclusion.
In order to be eligible to exclude up to $250,000, you must meet the following requirements:
- You must meet the "ownership and use" test. Under this requirement, you must have owned the home for at least two years, and have lived in it as your primary residence for at least two years. This two-year period must be within the five-year period ending on the date you sold your home.
- You did not exclude from your income the gain of a sale from another home during the two-year period ending on the date of the sale of the home for which the exclusion is being claimed.
If you shared ownership in the home, but you and the other owner file separate returns, you may each exclude up to $250,000 from your income, if you both meet the requirements listed above.
If you are married, you may be subject to additional requirements.
For detailed information about the eligibility requirements for this exclusion, refer to IRS Publication 523, which also includes information about the reduced maximum exclusion for individuals who are not eligible to claim the maximum exclusion.
Federal income taxes provide for an exclusion of gains of up to $250,000 for an individual and $500,000 for a couple for the sale of their primary home. The gain is calculated from the selling price, after subtracting the purchase price, the cost of capital improvements you made to the home, and closing costs for both the purchase and sale of the home.
Feel free to contact us regarding additional financial planning or investing questions.
Watts Capital Partners is a Registered Investment Adviser (RIA) with an expertise in minimizing client taxes, developing financial plans to help clients navigate life's financial transitions, and in investing client assets to achieve excellent risk-adjusted returns.
It depends on your filing status. For a MFJ couple, you can exclude a $500K capital gain from selling your home ($250K for the Single filers), but you must meet the ownership and use tests.You must have owned and lived in your home as your principal residence an aggregate of at least two of the five years before the sale. In addition, you can claim the exclusion once every two years. Best!
Be certain to check with your tax preparation professional on this matter. In general, capital gains from the sale of your primary residence are free of tax provided you have lived in the home for at least two of the last five years. There are also limits to the dollar amount that is excluded. The IRS also has some easy to understand information on their website regarding the issue. https://www.irs.gov/taxtopics/tc701.html
It depends, see below to determine if you can exclude the gain.
How your sale qualifies. Your sale qualifies for exclusion of a $250,000 gain ($500,000 if married filing jointly) if the following is true:
You owned the home and used it as your main home during at least 2 of the last 5 years before the date of sale.
You did not acquire the home through a like-kind exchange (also known as a 1031 exchange), during the past 5 years.
You did not claim any exclusion for the sale of a home that occurred during a 2-year period ending on the date of the sale of the home, the gain from which you now want to exclude.