| Click on our Advertisement |
|
|
If you made money selling your house, you'll be pleased to know that you can exclude some or all of that capital gain from your income, when filling out your tax return. That little exclusion can save you a lot of money in taxes. (If you sold for a loss, though, you cannot take a deduction for the loss).
How Much Can I Exclude?
If you qualify for the exclusion, you can exclude up to $500,000 of the profit from the sale if you're married filing jointly, and up to $250,000 if you're single.
You cannot exclude more than the sales price. Example: If you sell your home for $200,000, you can only exclude up to $200,000.
But you can use this exclusion every time you sell a home, as long as you haven't sold another home in the last two years.
Do I Qualify?
You must have owned and lived in the house for two out of five years before the sale. (These requirements are known as the ownership and use tests.)
Also, if you're married:
-You must file a joint return.
-Either you or your spouse, or both of you must own the house.
-Both you and your spouse must have lived in the house.
There are also exceptions where you may be able to take a full or partial exclusion even if you don't meet the ownership and use tests, and you may be able to take a partial exclusion if you don't meet all of the tests.
Married couples can face some complicated situations when selling a home. Here are some examples of how to handle them:
-If you are filing a joint return, but were not sharing the residence you sold with your spouse, you can claim an exclusion of up to $250,000. Your spouse can also claim a $250,000 exclusion on the sale of the other home that served as his or her residence.
-If only one spouse meets the requirements for ownership and use, you and your spouse can take separate $250,000 exclusions.
-If you marry someone who has used the exclusion within the last two years, you are limited to a maximum exclusion of $250,000. After two years have passed since either of you claimed the exclusion, you can exclude $500,000 of gain on your joint return the next time you sell a house if both of you meet the ownership and use tests. If two years have not yet passed, check with your accountant to see if you are eligible for a partial exclusion.
Remember: the exclusion applies only to your principal residence, which is the dwelling where you spend most of your time. A vacation home used only seasonally does not qualify. And while the residence can be of almost any type — mobile home, trailer, houseboat, condominium, or stock you hold in a cooperative apartment — an investment in a retirement home does not qualify if you do not receive a legal interest in the property.
How do I Report the Gain?
If all of your gains can be excluded, you do not need to report the sale on your return.
If part of your gain is excluded, but you made so much money that there is some left over after the exclusion, you need to report that portion of the gain, and pay taxes on it. Report any taxable gain on Schedule D (Form 1040). Or, if you used part of your home for a home office, or some kind of home business, you may have to include Form 4797, Sales of Business Property. This money is reported either on Schedule D or on Form 4797, not on both.
|
