The Tax Benefits of Selling Your Home

The new tax code does not tax the profits from the sale of a home if the proceeds are used to buy another house costing at least as much as the sales price of the old one. Also, if you or your spouse are at least 55 years old, you may be able to sell your home and exclude the first $125,000 of gains from your taxable income without reinvesting the money.

Tax Relief on Home Sale Gains

When: Effective for home sales from 5/7/97 and onward.

Who Benefits: Homeowners.

When you sell your home, you no longer include capital gains in your taxable income, up to $500,000 of gain if you are married filing jointly ($250,000 for everyone else).

Previously, to avoid paying capital gains when you sold a home, you could either sell your house and buy a more expensive one within a certain time period, or you could take advantage of a one-time $125,000 gain exclusion if you were 55 or older when you made the sale. These two special provisions are gone starting 5/7/97.

How do I qualify for this exclusion?
You must have owned AND lived in that home as your principal residence for at least two years during the 5-year period that ends on the date of the sale. If you're married filing jointly, either one of you could have owned the house for that requirement, but BOTH of you must have lived in the home for at least two of the last five years.

Can I take the capital gains exclusion every year?
Generally, no. Normally you can't use the exclusion more than once every two years. However, partial exclusions are available if you can't meet this requirement because of a job change, or if you have to move for health or other unforeseen circumstances. Different rules also apply if you transfer to a licensed care facility.

Does the sale of my home still get reported to the IRS on Form 1099-S?
The sale of your home is NOT reported to the IRS on Form 1099-S if (1) the sale is for $250,000 or less ($500,000 if you are married filing jointly), (2) the sale occurs after 8/5/97, (3) the real estate reporting person (escrow, generally) receives written assurance from you that the house was your principal residence, AND (4) the full amount of the gain on the sale can be excluded under the new law. Certain exceptions apply. 

*Consult your tax advisor for information.

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