Frequently Asked Tax Questions
Capital Gains, Losses/Sale of Home - Property (Basis, Sale of Home, etc.)
Rev. date: 1/2009To figure the basis of property you receive as a gift, you must know 3 amounts:
- The adjusted basis to the donor just before it was given to you.
- The fair market value (FMV) at the time it was given to you.
- The amount of any gift tax paid.
If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or loss when you dispose of the property.
- Your basis for figuring a gain is the same as the donor's adjusted basis, plus or minus any required adjustments to basis while you held the property.
- Your basis for figuring a loss is the FMV of the property when you received the gift, plus or minus any required adjustments to basis while you held the property.
NOTE: If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and get a gain, you have neither a gain nor loss on the sale or disposition of the property.
If the FMV is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. If you received a gift after 1976, increase your basis by the part of the gift tax paid on it that is due to the net increase in value of the gift. To figure the net increase in value or for more information on gifts received before 1977, see Publication 551, Basis of Assets. Also, for figuring gain or loss, you must increase or decrease your basis by any required adjustments to basis while you held the property.
Rev. date: 1/2009You may be able to exclude the gain from the sale of a home that you used as a rental but you must meet the ownership and use tests and must not have excluded gain from the sale of a principal residence from gross income during the two year period that ends on the date of sale or exchange of your current principal residence. You cannot exclude an amount of the gain equal to the depreciation deductions claimed, or that could have been claimed, on your tax returns. However, if you have adequate records or other evidence that the depreciation deductions claimed on your returns were less than the amounts allowable, the amount of the gain realized on the sale that will not qualify for exclusion from income will be equal to the amount of the depreciation deductions claimed on your tax returns. Refer to
Publication 523,
Selling Your Home, and Form 4797 (PDF),
Sale of Business Property, for specifics on calculating and reporting the amount of gain.
Rev. date: 1/2009Your second home is considered a capital asset. Use
Form 1040, Schedule D (PDF) to report sales, exchanges, and other dispositions of capital assets.
Rev. date: 1/2009As long as you satisfy the ownership and use tests, and have not excluded gain from the sale of a principal residence within the two year period ending on the date of the sale or exchange, there is no limit on the number of times you can exclude the gain from the sale of a principal residence from gross income.
Rev. date: 1/2009Basis is your investment in property for tax purposes. There are 2 major uses of basis.
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The determination of whether the disposition of an asset results in gain or loss is made by determining the difference between the selling price and the adjusted basis in the asset.
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The adjusted basis of depreciable property is the basis used to figure allowable depreciation deductions.
Basis is your investment in property for tax purpose.
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Your original basis is usually your cost to acquire the asset.
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Your adjusted basis (which is the basis you use to determine gain or loss or depreciation amounts) is the result of increasing or decreasing your original basis to take account of certain events.
Increases to basis include but are not limited to:
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The cost of improvements having a useful life of more than a year
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Assessments for local improvements
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Sales tax that is not deducted
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The cost of extending utilities lines to your property
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Legal fees incurred in defending or perfecting title to property
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Costs of obtaining a zoning change for property
Decreases to basis include but are not limited to:
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Depreciation, amortization, and depletion deductions
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Nontaxable corporate distributions
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Insurance reimbursements for casualty and theft losses
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Easements
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Rebates from the manufacturer or seller
Rev. date: 1/2009For home sales after May 6, 1997, you will generally only need to report the sale of your home if you realized a gain on the sale and either you did not own and use the home as your principal residence for a total of at least two years during the five year period that ended on the date of the sale or you realized a gain of more than $250,000 ($500,000 for certain joint returns). To determine the amount of gain that can be excluded from income refer to
Publication 523,
Selling Your Home. You may be entitled to exclude the gain realized on sale of your principal residence from income if during the 5-year period ending on the date of the sale:
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You owned the home for a total of at least 2 years; the 2 year period need not be continuous (the ownership test).
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You must have lived in the home as your main home for a total of at least 2 years; the 2 year period need not be continuous (the use test).
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During the 2-year period ending on the date of sale, you did not exclude gain from the sale of another home.
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If you owned and lived in the property as your main home for less than 2 years, you may still be able to claim a reduced exclusion in some cases. See Publication 523, Selling Your Home for more information.
If you are required or choose to report a gain on the sale of your principal residence, it is reported on
Form 1040, Schedule D (PDF),
Capital Gains and Losses. NOTE: If you were on qualified extended duty in the U.S. Armed Services, Foreign Service, or the intelligence community (sales or exchanges after December 20, 2006) you may suspend the five-year test period for up to 10 years. You may use this provision for only one property at a time. You are on qualified extended duty when you are assigned to a duty station at least 50 miles from your former principal residence or are residing in government housing under orders and the duty lasts for more than 90 days or for an indefinite period.
Rev. date: 1/2009The amount realized on the sale in excess of your cost (adjusted basis), determines whether:
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