I sold my house. Can I exclude the gain from my income?
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.
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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!
Whether or not you are exempt from tax will depend on your filing status, the amount of the gain, and your occupancy status for the property sold.
Under Internal Revenue Code Section 121, you only pay taxes when your gain is more than $250,000 above your 'basis' if you are a single filer, or $500,000 if you are filing jointly.
Your gain is figured by determining your basis. Your basis consists of what you originally paid for the property plus certain closing costs at the time. Then you add in major home improvements (i.e. new kitchen, adding a room, etc.). Then you add in whatever real estate transaction fees you incurred.
To figure out the gain, take your sale price less this 'basis'. If the difference is less than $250,000 (single filier) or $500,000 (filing jointly), then you will have no tax on any of your gain.
You will need to file a form with your taxes to document this.
To best determine whether or not your property sale is exempt, you may want to speak with a qualified tax planner. You can also review the relevant IRS publication: https://www.irs.gov/publications/p523/ar02.html
The gain from selling your house can be excluded from income if:
- It is your primary house. It is considered to be primary house if you have owned and lived in the house for at least two years out of the last five years.
- You did not exclude the gain of selling another house within the last two years.
The maximum amount that can be excluded depends on your personal status:
- If you are single, you may exclude up to $250,000.
- If you are a married filing jointly, you may exclude up to $500,000.