So you sold your home and you’re wondering whether you have to report it, whether it’s taxable, and, if it was sold at a loss, if you can deduct it against your other income?
It’s best to start at the first part of the question: Do I have to report the sale of my home on my tax return?
When you sell your home, the lending company or title company will generally issue a 1099-S. This form reports the gross proceeds from the sale of the home to the seller. This form is issued to the seller as well as to the IRS. Therefore, they will know how much money you received from the sale of your home.
Generally, if you receive a 1099-S, you must report the sale of your home on your tax return. If you do not receive a 1099-S and you meet all of the tests to have the home considered your main home, you generally do not have to report the sale on your return.
However, just because you don’t have to report it doesn’t meet it might not be a good idea to do so anyway. Reporting it on your tax return and showing why the sale is excludable may be your best bet in the event of an audit. Otherwise, you may have to go back through your records and prove that the gain on the sale is excludable in a year that has long since been forgotten.
To prove that a home is your main home you must meet a few tests. The most important test is determining that you or your spouse owned and used the house for at 2 years out of the last 5 years. Not surprisingly, the name of this test is the Ownership and Use Test.
In order to meet the ownership test, you or your spouse must be considered the owner for at least two years out of the last five years from the date of the sale.
To meet the use part of the test, you or your spouse must have lived in the house as your main home for at least two out of the five years from the date of the sale.
So Is the Gain on My Home Taxable?
Again, if you meet the ownership and use tests, you may be required to report the sale. However, you can exclude up to $250,000 if you’re single or up to $500,000 if you’re married, of gain on the sale of the home.
Can I Deduct the Loss on the Sale of My Home Against My Other Income?
Unfortunately, where the government gives with one hand, they take away with the other. Just as the gain on the sale of your main home is not taxable, the loss on the sale is not deductible.
This article is not intended to be tax, legal, or financial advice. For information regarding your specific situation, please consult a local professional.