I just sold my home, how much tax will I owe?
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Home-Sale Gain Exclusion
Overview
If you sell your main home, you might not owe any tax at all. The key elements are that it must be a home that you've owned and used as your principal residence for at least two of the past five years. If you meet those criteria, and you haven't claimed this exclusion during the two years prior to sale, the first $250,000 of gains when you sell the home is excluded from tax. If you're married and file a joint tax return, the exclusion amount is $500,000 as long as both of you have met the 2-of-5 year residency requirement (it's OK if only one of you owned the home).
This is an enormous tax break for home owners, and a big change to the prior law (which, before 1997, required that you purchase another home with the sale proceeds). It's one of the very few examples of truly tax-free gains in the federal tax code.
How do you figure out what your gains are? In a simple case: you buy a house for $150,000 and sell it for $350,000...the gains are $200,000, so are all tax-free. But there are many situations where you need to adjust the cost basis of your home, and even figuring out exactly what your purchase price was can be tricky. A complete discussion of this topic is beyond the scope of these FAQs...see the IRS guidance and talk to a tax professional.
Special Situations
In the simplest case -- a single home with under $250k/$500k in gains, that you've lived in continuously for many years -- there's not much to think about with this tax section. Things get complicated...
- if you haven't met the two-year requirements, because there are exceptions under which you can claim a partial exclusion (such as being forced to move because of a job change)
- if you own multiple homes. Determining which is your "principal residence" might not be easy.
- if you've used the home partially for business uses, or rented part out.
See the references below and your CPA or tax attorney for details on these kinds of situations.
State Taxes
MIFP posts have not addressed whether there are any states that do not conform to federal tax law, on either the basic exclusion rule or on the residency and ownership requirements. Check with your state on this one.
Tax References
IRS Publication 523, "Selling Your Home" contains details about the exclusion. For further research see Internal Revenue Code Sec. 121 and the associated regulations.
Home Sales - Other than your Principal Residence
This question hasn't come up much on MIFP so thankfully, the editor can take a pass on this complicated topic!
