IRS Tax Rules When Selling Your Home and Guidelines for Capital Gains

Income Tax Tips When Selling Your Home

The IRS publishes a helpful pamphlet called “publication 523 Selling Your Home”.  It was last published for use with 2011 income tax returns.    The publication contains tax information related to the sale of your home if you sold your main home during the previous tax year.



What is your “main home”?  It is the home you lived in the majority of the year whether it’s a house, condo, cooperative apartment, mobile home or houseboat.

According to IRS rules, you can exclude gain on your income tax returns for the following reasons:

• You have lived in your main home for at least two of the last five years with the five-year period ending on the date of the sale.
• Your gain was less than $250,000 for an individual return or 500,000 for a joint return.
• If you meet certain ownership and IRS use tests.

However, you cannot do the following:

• Deduct losses on your main home.
• Exclude gain from the sale of your main home if you excluded the sale of another home in the two years prior to your current home’s sale.
• Exclude the gain of more than one home.  Gain from your second home must be taxed.

If you took advantage of the 2009 or 2010 first time homebuyer credit, you must repay the credit if your main home is sold within three years of its purchase.  File Form 5405, First-Time Homebuyer Credit and Repayment of the Credit with your tax return.  If, however, you sell your home after 36 months, you will not be required to repay the credit. 

Some other income tax information to consider:

• Publication 523 contains three worksheets to help you determine your tax liability.  You can view these forms online at http://www.irs.gov/pub/irs-pdf/p523.pdf.
• Use Form 8822, Change of Address, to notify the IRS when you move.  It’s a good idea to notify the postal services as well.
• Any taxable gain must be reported on Form 1040, Schedule D, Capital Gains and Losses.

Have tax questions?  You can call the IRS at 1-800-829-1040.