Did you know that when you sell your home, you may be able to exclude up to $250,000 of your gain from taxes if you’re unmarried (or married, filing separately) and up to $500,000 if you’re married and file jointly?
Eligibility for the Exclusion
To claim the full exclusion, you must have owned and lived in your home as your principal residence for at least two of the five years before the sale. This exclusion can be claimed once every two years.
Reporting Requirements
Even if your home sale is tax-free due to the exclusion, you might still need to report it to the IRS. Here’s when and why:
- Form 1099-S: Your home sale might have been reported to the IRS by your real estate agent, closing company, mortgage lender, or attorney using Form 1099-S, Proceeds from Real Estate Transactions. This form includes the gross proceeds from the sale, the property address, and the closing date. If you received a Form 1099-S, you must report the sale on your tax return, even if your entire gain is tax-free. Failing to do so could result in the IRS assuming the selling price is the taxable gain, which could cause complications.
- No Form 1099-S: If your home sold for less than the applicable $250,000/$500,000 exclusion and you signed a certification stating that you qualified for the exclusion, Form 1099-S need not be filed. This certification is usually done at the closing.
- Voluntary Reporting: If Form 1099-S was not issued, the IRS does not require you to report the sale on your return. However, reporting it can be beneficial as it can prevent the IRS from asserting that the six-year statute of limitations on audits should apply due to omitting more than 25% of gross income from your return.
How to Report
Reporting the sale of your principal residence is straightforward. You need to file IRS Form 8949, Sales and Other Dispositions of Capital Assets, with your annual return and enter your zero gain on IRS Schedule D.
By understanding these requirements, you can ensure compliance and avoid potential issues with the IRS. If you have any questions, contact us at [email protected]. We’d love to help!