Selling your home may complicate your taxes, depending on whether it's your main home. It's all about gain and loss. Let's explore how.
A gain or loss is figured by the IRS using the following formula:
Selling price – selling expenses = amount realized – adjusted basis = gain or loss
If you do have a gain from the sale of your home, you may be eligible to exclude that gain, meaning it's not taxed. You can exclude up to $250,000 if:
If you jointly own the home but file separately, both people can claim $250,000 if both taxpayers meet the requirements.
If you’re married and file jointly, you can exclude up to $500,000. To claim the $500,000 deduction:
If you’re a surviving spouse, you may still claim the higher exclusion if you meet the following eligibility requirements:
If you have a gain that you can’t or choose not to exclude, have a loss, or received Form 1099-S, you must report the sale of your home. You can do that on your Tax Office & Associates™ return on our Form 4797 screen.
If you sell a rental property, you can claim any gain on the property that is above the adjusted basis at the time the property became a rental property.
Also see Cancelled Mortgage Debt, Foreclosure, and Short Sales