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Taxes Related to Selling a Home by Adam Slavin, CPA

Posted on July 10, 2018 by Adam Slavin

The sale of a family home comes with a long list of tax liabilities and some opportunities of which sellers should be aware.

Taxable Gains and Non-Deductible Losses

The IRS allows certain individuals who sell their homes for a profit to exclude up to $250,000 of that gain from their taxable income, or $500,000 when the homeowners are married filing joint tax returns. When the exclusion amount covers the entirety of a taxpayer’s gain, he or she does not need to report the sale on his or her federal income tax return unless he or she chooses not to claim the exclusion. Should a taxpayer involved in a real estate transaction receive IRS Form 1099-S, Proceeds from Real Estate Transactions, he or she must also report the sale on their tax return.

To qualify for this benefit, you must have owned the home you intend to sell and lived in it as a primary residence for at least two of the five years prior to the date of sale. If you own multiple homes, the exclusion may be applied only to the sale of the one property where you lived for the majority of your time, unless you have a disability or are a member of the U.S. military. Any realized gains from the sale of other vacation homes will be subject to tax. Only under certain circumstances, including divorce or death of a spouse, may you qualify for a partial exclusion on the gain from the sale of a home that does not meet the two-year ownership and use requirement.

However, if you sell your primary residence for less than the amount you paid for it, you may not deduct the loss from your taxable income.

Transfers of Ownership Between Spouses

Generally, if you transferred all or a share of your home to a spouse or ex-spouse as part of a divorce settlement, you have neither a reportable gain nor loss unless your spouse or ex-spouse is a nonresident alien.

Mortgage Debt

When home sales result from a foreclosure or when lenders rework, forgive or cancel a homeowner’s mortgage debt, the seller must report those amounts as income on their tax returns in the year of the home sale.

Report Address Changes

After selling your home, it is critical that you update your address with your insurance providers, professional advisors, accountants, banks and financial institutions. It is equally important that you take the time to alert the IRS and Social Security Administration of any changes to your mailing address. For assistance, please contact your tax advisor.

 

About the Author: Adam Slavin, CPA, is a senior manager with Berkowitz Pollack Brant’s Tax Services practices, where he provides tax planning and consulting services to high-net-worth individuals and closely held business.  He can be reached at the CPA firm’s Boca Raton, Fla., office at (561) 361-2000 or via email at info@bpbcpa.com.

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