Are you thinking about selling your home?
As you consider your options, make sure you include the tax implications in your evaluation process. If the sale of your house results in a capital gain (the excess of the amount realized over the adjusted basis of the property), you may be subject to a capital gains tax when you file taxes.
What are the criteria for excluding the capital gain from your taxable income?
Generally, if you meet certain criteria, you may qualify to exclude all or part of any capital gain on the sale of your home when you file your taxes. Here are a few things to consider:
- If you qualify for the exclusion of gain, you may exclude up to the first $250,000 of gain ($500,000 if married filing jointly) from the sale of a home from your taxable income.
- Generally, you must have owned and used the home as your main residence and lived in the property for at least 24 months during the previous 5-years leading up to the date of sale.
- The 24 months do not need to be continuous or in a single block of time.
- Only one spouse has to meet the ownership requirement.
To mitigate tax consequences, you should consider if you meet the requirements of the exclusion, including if you pass both the "ownership" and "use" tests before you sell your home. If you currently do not pass one or both of the tests, you may want to consider delaying the sale of your home until you do. For additional information, see IRS Tax Publication 523, "Selling Your Home," to determine the maximum dollar limit you can exclude and for additional rules, explanations, examples and worksheets.