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Wise planning for selling your home

If you're looking to sell, you'll want to read this before you start counting your capital gains.

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. However, if you meet certain criteria, you can qualify to exclude all or part of any capital gain up to a limit of $250,000 ($500,000 on a joint return in most cases) from your taxable income. Also important to note is that you cannot deduct a capital loss on the sale of your home from your taxable income.

What are the criteria for excluding the capital gain from your taxable income?

  • You must own and live (use) in the property as your main home for at least 2 years during the 5-year period ending on the date of sale. The required 2 years of ownership and use during the 5-year period ending on the date of the sale do not need to be continuous nor do they need to occur at the same time.
  • Generally, you cannot exclude capital gain on the sale of your home if, during the 2-year period ending on the date of the sale, you sold another home at a gain and excluded all or part of that gain.

To avoid tax consequences, make sure 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. 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.

Neither State Farm® nor its agents provide tax or legal advice.

State Farm® (including State Farm Mutual Automobile Insurance Company and its subsidiaries and affiliates) is not responsible for, and does not endorse or approve, either implicitly or explicitly, the content of any third party sites hyperlinked from this page. State Farm has no discretion to alter, update, or control the content on the hyperlinked, third party site. Access to third party sites is at the user's own risk, is being provided for informational purposes only and is not a solicitation to buy or sell any of the products which may be referenced on such third party sites.


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