You may qualify to exclude from your income all or part of any gain from the sale of your main home. Your main home is the one in which you live most of the time. If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases). This exclusion is allowed each time that you sell your main home, but generally no more frequently than once every two years.
To claim the exclusion, you must meet the ownership and use tests. This means that during the 5-year period ending on the date of the sale, you must have owned the home for at least two years and lived in the home as your main home for at least two years. You also must not have excluded gain on another home sold during the two years before the current sale.
If you have more than one home, you can exclude gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.
If you do not meet the ownership and use tests, you may be allowed to exclude a reduced maximum amount of the gain realized on the sale of your home if you sold your home due to health, a change in place of employment, or certain unforeseen circumstances. Unforeseen circumstances include, for example, divorce or legal separation, natural or man-made disaster resulting in a casualty to your home, or an involuntary conversion of your home.
You cannot deduct a loss from the sale of your main home.
How do you decide to report the sale of your main home on your tax return? Contact us, we’ll be happy to help.