To figure the gain or loss on the sale of your main home, you must know the selling price, the amount realized, and the adjusted basis. Subtract the adjusted basis from the amount realized to get your gain or loss.
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The selling price is the total amount you receive for your home. It includes money; all notes, mortgages, or other debts assumed by the buyer as part of the sale; and the fair market value of any other property or any services you receive. taxmap/pub17/p17-082.htm#en_us_publink1000172391
You may have to sell your home because of a job transfer. If your employer pays you for a loss on the sale or for your selling expenses, do not include the payment as part of the selling price. Your employer will include it as wages in box 1 of your Form W-2 and you will include it in your income on Form 1040, line 7, or on Form 1040NR, line 8.taxmap/pub17/p17-082.htm#en_us_publink1000172392
If you grant an option to buy your home and the option is exercised, add the amount you receive for the option to the selling price of your home. If the option is not exercised, you must report the amount as ordinary income in the year the option expires. Report this amount on Form 1040, line 21, or on Form 1040NR, line 21.taxmap/pub17/p17-082.htm#en_us_publink1000172393
If you received Form 1099-S, Proceeds From Real Estate Transactions, box 2 (gross proceeds) should show the total amount you received for your home.
However, box 2 will not include the fair market value of any services or property other than cash or notes you received or will receive. Instead, box 4 will be checked to indicate your receipt or expected receipt of these items.
If you can exclude the entire gain, the person responsible for closing the sale generally will not have to report it on Form 1099-S. If you do not receive Form 1099-S, use sale documents and other records to figure the total amount you received for your home. taxmap/pub17/p17-082.htm#en_us_publink1000172394
The amount realized is the selling price minus selling expenses. taxmap/pub17/p17-082.htm#en_us_publink1000172395
Selling expenses include:
- Advertising fees,
- Legal fees, and
- Loan charges paid by the seller, such as loan placement fees or "points."
While you owned your home, you may have made adjustments (increases or decreases) to the basis. This adjusted basis must be determined before you can figure gain or loss on the sale of your home. For information on how to figure your home's adjusted basis, see Determining Basis
To figure the amount of gain or loss, compare the amount realized to the adjusted basis. taxmap/pub17/p17-082.htm#en_us_publink1000172399
If the amount realized is more than the adjusted basis, the difference is a gain and, except for any part you can exclude, generally is taxable.taxmap/pub17/p17-082.htm#en_us_publink1000172400
If the amount realized is less than the adjusted basis, the difference is a loss. A loss on the sale of your main home cannot be deducted.taxmap/pub17/p17-082.htm#en_us_publink1000172401
If you and your spouse sell your jointly owned home and file a joint return, you figure your gain or loss as one taxpayer. taxmap/pub17/p17-082.htm#en_us_publink1000172402
If you file separate returns, each of you must figure your own gain or loss according to your ownership interest in the home. Your ownership interest is determined by state law.taxmap/pub17/p17-082.htm#en_us_publink1000172403
If you and a joint owner other than your spouse sell your jointly owned home, each of you must figure your own gain or loss according to your ownership interest in the home. Each of you applies the rules discussed in this chapter on an individual basis.taxmap/pub17/p17-082.htm#en_us_publink1000172404
Some special rules apply to other dispositions of your main home.taxmap/pub17/p17-082.htm#en_us_publink1000172405
If your home was foreclosed on or repossessed, you have a disposition.
You figure the gain or loss from the disposition in generally the same way as gain or loss from a sale. But the selling price of your home used to figure the amount of your gain or loss depends, in part, on whether you were personally liable for repaying the debt secured by the home and whether the debt is qualified principal residence indebtedness. See Publication 523 for more information. taxmap/pub17/p17-082.htm#en_us_publink1000172406
Generally, you will receive Form 1099-A, Acquisition or Abandonment of Secured Property, from your lender if your home is transferred in a foreclosure. This form will have the information you need to determine the amount of your gain or loss and any ordinary income from cancellation of debt that is not a discharge of qualified principal residence indebtedness. If your debt is canceled, you may receive Form 1099-C, Cancellation of Debt.taxmap/pub17/p17-082.htm#en_us_publink1000172407
You may be able to exclude from gross income a discharge of qualified principal residence indebtedness. This exclusion applies to discharges made after 2006 and before 2013. If you choose to exclude this income, you must reduce (but not below zero) the basis of the principal residence by the amount excluded from your gross income.
File Form 982 with your tax return. See the form's instructions for detailed information.taxmap/pub17/p17-082.htm#en_us_publink1000172408
Your principal residence is the home where you ordinarily live most of the time. You can have only one principal residence at any one time. See Main Home
This indebtedness is a mortgage you took out to buy, build, or substantially improve your principal residence. It also must be secured by your principal residence. taxmap/pub17/p17-082.htm#en_us_publink1000172410
The exclusion applies only to debt discharged after 2006 and before 2013. The maximum amount you can treat as qualified principal residence indebtedness is $2 million ($1 million if married filing separately). You cannot exclude from gross income discharge of qualified principal residence indebtedness if the discharge was for services performed for the lender or on account of any other factor not directly related to a decline in the value of your residence or to your financial condition.taxmap/pub17/p17-082.htm#en_us_publink1000172411
If you abandon your home, you may have ordinary income. If the abandoned home secures a debt for which you are personally liable and the debt is canceled, you have ordinary income equal to the amount of the canceled debt. See Publication 523 for more information. taxmap/pub17/p17-082.htm#en_us_publink1000172412
If you trade your old home for another home, treat the trade as a sale and a purchase. taxmap/pub17/p17-082.htm#en_us_publink1000172413
You owned and lived in a home with an adjusted basis of $41,000. A real estate dealer accepted your old home as a trade-in and allowed you $50,000 toward a new home priced at $80,000. This is treated as a sale of your old home for $50,000 with a gain of $9,000 ($50,000 – $41,000).
If the dealer had allowed you $27,000 and assumed your unpaid mortgage of $23,000 on your old home, your sales price would still be $50,000 (the $27,000 trade-in allowed plus the $23,000 mortgage assumed).taxmap/pub17/p17-082.htm#en_us_publink1000172414
If you transfer your home to your spouse or to your former spouse incident to your divorce, you generally have no gain or loss. This is true even if you receive cash or other consideration for the home. Therefore, the rules in this chapter do not apply. taxmap/pub17/p17-082.htm#en_us_publink1000172415
If you need more information, see Transfer to spouse in Publication 523 and Property Settlements in Publication 504, Divorced or Separated Individuals.taxmap/pub17/p17-082.htm#en_us_publink1000172416
You have a disposition when your home is destroyed or condemned and you receive other property or money in payment, such as insurance or a condemnation award. This is treated as a sale and you may be able to exclude all or part of any gain from the destruction or condemnation of your home, as explained later under Special Situations
You need to know your basis in your home to figure any gain or loss when you sell it. Your basis in your home is determined by how you got the home. Your basis is its cost if you bought it or built it. If you got it in some other way (inheritance, gift, etc.), your basis is either its fair market value when you received it or the adjusted basis of the previous owner.
While you owned your home, you may have made adjustments (increases or decreases) to your home's basis. The result of these adjustments is your home's adjusted basis, which is used to figure gain or loss on the sale of your home. See Adjusted Basis
You can find more information on basis and adjusted basis in chapter 13
of this publication and in Publication 523.
The cost of property is the amount you pay for it in cash, debt obligations, other property, or services. taxmap/pub17/p17-082.htm#en_us_publink1000172420
If you buy your home, your basis is its cost to you. This includes the purchase price and certain settlement or closing costs. Generally, your purchase price includes your down payment and any debt, such as a first or second mortgage or notes you gave the seller in payment for the home. If you build, or contract to build, a new home, your purchase price can include costs of construction, as discussed in Publication 523.taxmap/pub17/p17-082.htm#en_us_publink1000172421
When you bought your home, you may have paid settlement fees or closing costs in addition to the contract price of the property. You can include in your basis some of the settlement fees and closing costs you paid for buying the home, but not the fees and costs for getting a mortgage loan. A fee paid for buying the home is any fee you would have had to pay even if you paid cash for the home (that is, without the need for financing).
lists some of the settlement fees and closing costs that you can include in the basis of property, including your home. It also lists some settlement costs that cannot be included in basis.
Also see Publication 523 for additional items and a discussion of basis other than cost.taxmap/pub17/p17-082.htm#en_us_publink1000172422
Adjusted basis is your cost or other basis increased or decreased by certain amounts. To figure your adjusted basis, you can use Worksheet 1 in Publication 523.taxmap/pub17/p17-082.htm#en_us_publink1000172423
These include the following.
- Additions and other improvements that have a useful life of more than 1 year.
- Special assessments for local improvements.
- Amounts you spent after a casualty to restore damaged property.
These add to the value of your home, prolong its useful life, or adapt it to new uses. You add the cost of additions and other improvements to the basis of your property.
For example, putting a recreation room or another bathroom in your unfinished basement, putting up a new fence, putting in new plumbing or wiring, putting on a new roof, or paving your unpaved driveway are improvements. An addition to your house, such as a new deck, a sunroom, or a new garage, is also an improvement. taxmap/pub17/p17-082.htm#en_us_publink1000172425
These maintain your home in good condition but do not add to its value or prolong its life. You do not add their cost to the basis of your property.
For example, repainting your house inside or outside, fixing your gutters or floors, repairing leaks or plastering, and replacing broken window panes are examples of repairs. taxmap/pub17/p17-082.htm#en_us_publink1000172426
These include the following.
- Discharges of qualified principal indebtedness (but do not reduce basis below zero).
- Gain you postponed from the sale of a previous home before May 7, 1997.
- General sales taxes claimed as an itemized deduction on Schedule A (Form 1040) that were imposed on the purchase of personal property, such as a houseboat used as your home or a mobile home.
- Deductible casualty losses.
- Insurance payments you received or expect to receive for casualty losses.
- Payments you received for granting an easement or right-of-way.
- Depreciation allowed or allowable if you used your home for business or rental purposes.
- Residential energy credit (generally allowed from 1977 through 1987) claimed for the cost of energy improvements that you added to the basis of your home.
- Nonbusiness energy property credit (allowed beginning in 2006 but not for 2008) claimed for making certain energy saving improvements that you added to the basis of your home.
- Residential energy efficient property credit (allowed beginning in 2006) claimed for making certain energy saving improvements that you added to the basis of your home.
- Adoption credit you claimed for improvements added to the basis of your home.
- Nontaxable payments from an adoption assistance program of your employer that you used for improvements you added to the basis of your home.
- Energy conservation subsidy excluded from your gross income because you received it (directly or indirectly) from a public utility after 1992 to buy or install any energy conservation measure. An energy conservation measure is an installation or modification that is primarily designed either to reduce consumption of electricity or natural gas or to improve the management of energy demand for a home.
- District of Columbia first-time homebuyer credit (allowed on the purchase of a principal residence in the District of Columbia beginning on August 5, 1997).
Recordkeeping. You should keep records to prove your home's adjusted basis. Ordinarily, you must keep records for 3 years after the due date for filing your return for the tax year in which you sold your home. But if you sold a home before May 7, 1997, and postponed tax on any gain, the basis of that home affects the basis of the new home you bought. Keep records proving the basis of both homes as long as they are needed for tax purposes.
The records you should keep include:
- Proof of the home's purchase price and purchase expenses,
- Receipts and other records for all improvements, additions, and other items that affect the home's adjusted basis,
- Any worksheets or other computations you used to figure the adjusted basis of the home you sold, the gain or loss on the sale, the exclusion, and the taxable gain,
- Any Form 982 that you filed to report any discharge of qualified principal residence indebtedness,
- Any Form 2119, Sale of Your Home, that you filed to postpone gain from the sale of a previous home before May 7, 1997, and
- Any worksheets you used to prepare Form 2119, such as the Adjusted Basis of Home Sold Worksheet or the Capital Improvements Worksheet from the Form 2119 instructions, or other source of computations.