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Frequently Asked Tax Questions

Capital Gains, Losses/Sale of Home - Property (Basis, Sale of Home, etc.)


Rev. date: 1/2009

What is the basis of property received as a gift?


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previous topic occurrence Basis next topic occurrence
previous topic occurrence Basis of Property next topic occurrence
previous topic occurrence Basis of property received. next topic occurrence
previous topic occurrence Cost Basis next topic occurrence
previous topic occurrence Gift next topic occurrence
previous topic occurrence Property Received as a Gift next topic occurrence
previous topic occurrence Publication 551 next topic occurrence

To figure the basis of property you receive as a gift, you must know 3 amounts:

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.

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: 1/2009

I lived in a home as my principal residence for the first 2 of the last 5 years. For the last 3 years, the home was a rental property before selling it. Can I still avoid the capital gains tax and, if so, how should I deal with the depreciation I took while it was rented out?


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previous topic occurrence Capital Gains and Losses next topic occurrence
previous topic occurrence Depreciation Deduction next topic occurrence
previous topic occurrence Depreciation of Rental Property next topic occurrence
previous topic occurrence Holding Period next topic occurrence
previous topic occurrence Primary Residence next topic occurrence
previous topic occurrence Rental next topic occurrence
previous topic occurrence Rental Property next topic occurrence
previous topic occurrence Rental of property also used as a home. next topic occurrence
previous topic occurrence Sales and Other Dispositions of Assets next topic occurrence
previous topic occurrence Sales and other Dispositions of Assets next topic occurrence
previous topic occurrence Selling Your Home next topic occurrence

You 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: 1/2009

How do you report the sale of a second residence?


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previous topic occurrence Capital Gains and Losses next topic occurrence
previous topic occurrence Second Residence next topic occurrence
previous topic occurrence Selling Your Home next topic occurrence

Your 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: 1/2009

If I exclude the gain on the sale of my old home this year, can I also take the exclusion again if I sell my new home in the future?


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previous topic occurrence Postponed gain from sale of home. next topic occurrence
previous topic occurrence Primary Residence next topic occurrence
previous topic occurrence Selling Your Home next topic occurrence

As 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: 1/2009

I have investment property. Can you explain the term basis of assets?


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Assets
previous topic occurrence Basis next topic occurrence
previous topic occurrence Basis of Investment Property next topic occurrence
previous topic occurrence Cost Basis next topic occurrence
previous topic occurrence Investment Income and Expenses next topic occurrence
previous topic occurrence Investment Property next topic occurrence
previous topic occurrence Publication 551 next topic occurrence

Basis is your investment in property for tax purposes. There are 2 major uses of basis.
Basis is your investment in property for tax purpose.
Increases to basis include but are not limited to:
Decreases to basis include but are not limited to:

Rev. date: 1/2009

I sold my principal residence this year. What form do I need to file?


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previous topic occurrence Selling Your Home next topic occurrence

For 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:
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: 1/2009

If I sell my home and use the money I receive to pay off the mortgage, do I have to pay taxes on that money?


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previous topic occurrence Primary Residence next topic occurrence
previous topic occurrence Selling Your Home next topic occurrence

The amount realized on the sale in excess of your cost (adjusted basis), determines whether:
previous pagePrevious Page: Capital Gains, Losses/Sale of Home > Mutual Funds (Costs, Distributions, etc.)
next pageNext Page:  Capital Gains, Losses/Sale of Home > Stocks (Options, Splits, Traders)
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