Primary Residence Capital Gains
Homeowners may qualify to exclude from their income all or part of any primary residence capital gains from the sale of their primary residence if the gain is less than $250,000 for single filers and $500,000 for married filing jointly.
A primary residence is the one in which homeowners live most of the time.
Ownership and Use Tests
To claim the exclusion, homeowners must meet the ownership and use tests. This means that during the 5-year period ending on the date of the sale, homeowners must have:
1. Owned the home for at least two years (the ownership test)
2. Lived in the home as your primary residence for at least two years (the use test)
Primary Residence Capital Gains
If homeowners have a primary residence capital gains from the sale of their primary residence, homeowners may be able to exclude up to $250,000 of the gain from their income ($500,000 on a joint return in most cases).
1. If homeowners can exclude all of the primary residence capital gains, homeowners do not need to report the primary residence capital sale on your tax return
2. If homeowners have primary residence capital gains that cannot be excluded, it is taxable. Report it on Schedule D (Form 1040)
Loss
Homeowners cannot deduct a loss from the sale of your primary residence.
Worksheets
Worksheets are included in IRS Publication 523, Selling Your Home, to help homeowners figure the:
1. Adjusted basis of the home homeowners sold
2. Primary Residence Capital Gains (or loss) on the sale
3. Primary Residence Capital Gains that homeowners can exclude
Reporting the Sale
Do not report the sale of your primary residence on your tax return unless homeowners have a primary residence capital gains and at least part of it is taxable. Report any taxable primary residence capital gains on Schedule D (Form 1040).
More than One Home
If homeowners have more than one home, homeowners can exclude primary residence capital gains only from the sale of their primary residence. Homeowners must pay tax on the capital gain from selling any other home. If homeowners have two homes and live in both of them, their primary residence is ordinarily the one homeowners live in most of the time.
Example One:
Homeowner owns and live in a house in the city. Homeowner also owns a beach house, which homeowner uses during the summer months. The house in the city is the homeowner’s primary residence; the beach house is not.
Example Two:
Homeowner owns a house, but homeowner lives in another house that homeowner rents. The rented house is the homeowners primary residence.
Business Use or Rental of Home
Homeowners may be able to exclude their capital gain from the sale of a primary residence that homeowner has used for business or to produce rental income. But homeowner must meet the ownership and use tests.
Example:
On May 30, 1997, Amy bought a house. She moved in on that date and lived in it until May 31, 1999, when she moved out of the house and put it up for rent. The house was rented from June 1, 1999, to March 31, 2001. Amy moved back into the house on April 1, 2001, and lived there until she sold it on January 31, 2003. During the 5-year period ending on the date of the sale (February 1, 1998 – January 31, 2003), Amy owned and lived in the house for more than 2 years as shown in the table below.
|
Five Year Period |
Used as Home |
Used as Rental |
|
2/1/98-5/31/99 |
16 months |
|
|
6/1/99-3/31/01 |
22 months |
|
|
4/1/01-1/31/03 |
22 months |
|
|
38 months |
22 months |
Amy can exclude primary residence capital gains up to $250,000. However, she cannot exclude the part of the primary residence capital gains equal to the depreciation she claimed for renting the house.
This is a blog post for Real Estate Professionals, Investors, Landlord, Property Manager, and Property Management Companies. Primary Residence Capital Gains is brought to you by SimplifyEm Pay Rent Online and Property Management Software
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