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Tax considerations when selling your home

Posted on July 16, 2023

Summertime is a very popular time for families to move. In fact, according to Domino.com, as many as 80% of U.S. moves occur from June through mid-September. If this statistic applies to you, here’s what to know about buying and selling your family home, according to the tax professionals at Teipen CPA Group.

First, the good news: selling your home may qualify to exclude all or part of any gain from the sale from your income when filing their tax return.

Ownership and use
To claim the tax exclusion, you must meet ownership and use tests. For instance, during the five-year period ending on the date of the sale, you must have owned the home and lived in it as your primary residence for at least two years.

If you sell your main home for a capital gain, you may be able to exclude up to $250,000 of that gain from your taxable income. If you file a joint return with your spouse, you may be able to exclude up to $500,000. Homeowners excluding all the gain do not need to report the sale on their tax return unless a Form 1099-S was issued.

If you experience a loss when your main home sells for less than what you paid for it, your loss is not deductible.

Multiple homes
If you own more than one home, you can exclude the gain only on the sale of your primary home. You must pay taxes on the gain from selling any other home.

Reported sale
If who don’t qualify to exclude all of the taxable gain from your income, you must report the gain from the sale of that home when you file your tax return. (If you choose not to claim the exclusion, you must still report the taxable gain on your tax return.) That means if you receive Form 1099-S, Proceeds from Real Estate Transactions, you must report the sale on your tax return even if you have no taxable gain.

Mortgage debt
Generally, you must report forgiven or canceled debt as income on your tax return. This includes those who had a mortgage workout, foreclosure or other canceled mortgage debt. If you had a debt discharged in whole or in part on a qualified principal residence, you can’t exclude that debt from your income unless it was discharged before January 1, 2026, or a written agreement for the debt forgiveness was in place before January 1, 2026.

There are possible exceptions
As with most things, there are exceptions to these rules for some, including persons with a disability, certain members of the military, intelligence community, and Peace Corps workers.

Got a question? For more information, visit IRS.gov:
Selling Your Home, Publication 523
Canceled Debts, Foreclosures, Repossessions, and Abandonments (For Individuals), Publication 4681
How Do I Report the Debt Forgiven on My Residence Due to Foreclosure, Repossession, Abandonment, or Because of a Loan Modification or Short Sale?