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taxmap/pubs/p523-005.htm#en_us_publink1000200792

Reporting the Sale(p19)


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previous topic occurrence Reporting the Sale next topic occurrence

Do not report the 2009 sale of your main home on your tax return unless:
If you have any taxable gain on the sale of your main home that cannot be excluded, report the entire gain (line 5 of Worksheet 2) on Schedule D (Form 1040). Report it on line 1 or line 8 of Schedule D, as short-term or long-term capital gain depending on how long you owned the home. If you qualify for an exclusion (line 9 of Worksheet 2), show it on the line directly below the line on which you report the gain. Enter "Section 121 exclusion" in column (a) of that line and show the amount of the exclusion in column (f) as a loss (in parentheses).
If you have a loss on the sale of your main home for which you received a Form 1099-S, you must report the loss on Schedule D even though the loss is not deductible. Report the transaction on line 1 or 8, as above. Complete columns (a) through (e). Enter -0- in column (f).
If you used the home for business or to produce rental income, you may have to use Form 4797 to report the sale of the business or rental part (or the sale of the entire property if used entirely for business or rental). See Business Use or Rental of Home, earlier, and the Instructions for Form 4797.
taxmap/pubs/p523-005.htm#en_us_publink1000200794

Installment sale.(p19)


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Some sales are made under arrangements that provide for part or all of the selling price to be paid in a later year. These sales are called "installment sales." If you finance the buyer's purchase of your home yourself, instead of having the buyer get a loan or mortgage from a bank, you probably have an installment sale. You may be able to report the part of the gain you cannot exclude on the installment basis.
Use Form 6252, Installment Sale Income, to report the sale. Enter your exclusion (line 9 of Worksheet 2) on line 15 of Form 6252.
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Seller-financed mortgage.(p19)
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If you sell your home and hold a note, mortgage, or other financial agreement, the payments you receive generally consist of both interest and principal. You must separately report as interest income the interest you receive as part of each payment. If the buyer of your home uses the property as a main or second home, you must also report the name, address, and social security number (SSN) of the buyer on line 1 of Schedule B (Form 1040A or Form 1040). The buyer must give you his or her SSN and you must give the buyer your SSN. Failure to meet these requirements may result in a $50 penalty for each failure. If you or the buyer does not have and is not eligible to get an SSN, see the next discussion.
taxmap/pubs/p523-005.htm#en_us_publink1000200796

Individual taxpayer identification number (ITIN).(p19)
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If either you or the buyer of your home is a nonresident or resident alien who does not have and is not eligible to get an SSN, the IRS will issue you (or the buyer) an ITIN. To apply for an ITIN, file Form W-7, Application for IRS Individual Taxpayer Identification Number, with the IRS.
If you have to include the buyer's SSN on your return and the buyer is an alien who does not have and cannot get an SSN, enter the buyer's ITIN. If you have to give an SSN to the buyer and you are an alien who does not have and cannot get one, give the buyer your ITIN.
An ITIN is for tax use only. It does not entitle the holder to social security benefits or change the holder's employment or immigration status under U.S. law.
taxmap/pubs/p523-005.htm#en_us_publink1000200797

More information.(p20)
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For more information on installment sales, see Publication 537, Installment Sales.
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Comprehensive Examples(p20)


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taxmap/pubs/p523-005.htm#en_us_publink1000200799

Example 1.(p20)

Peter and Betty Clark, who are married and file a joint return, bought a home in 1967. They lived in it as their main home until they sold it in February 2009 and moved into a retirement community. The Clarks can exclude gain on the sale of their home because they owned and lived in it for at least 2 years of the 5-year period ending on the date of sale.
Their records show the following.
Original cost$ 40,000
Legal fees for title search250
Improvements (roof)2,000
Selling price395,000
Selling expenses, including commission25,000
The Clarks use Worksheet 1 to figure the adjusted basis of the home they sold ($42,250). They use Worksheet 2 to figure the gain on the sale ($327,750) and the amount of their exclusion ($327,750). Their completed Worksheets 1 and 2 follow.
Since the Clarks are married and file a joint return for the year, they qualify to exclude the full amount of their gain. Because they choose to exclude the gain, they do not report the sale of the home on their tax return.
taxmap/pubs/p523-005.htm#en_us_publink1000207400
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Worksheet 1. Adjusted Basis of Home Sold—Illustrated Example 1 for Peter and Betty Clark

Caution: See the Worksheet 1 Instructions before you use this worksheet.  
1.  Enter the purchase price of the home sold. (If you filed Form 2119 when you originally acquired that
home to postpone gain on the sale of a previous home before May 7, 1997, enter the adjusted basis of
the new home from that Form 2119.)
1. $40,000  
2.  Seller-paid points for home bought after 1990 (see Seller-paid points ). Do not include any seller-paid points
you already subtracted to arrive at the amount entered on line 1
2.               
3.  Subtract line 2 from line 1 3. 40,000  
4.  Settlement fees or closing costs (see Settlement fees or closing costs ). If line 1
includes the adjusted basis of the new home from Form 2119, skip lines 4a–4g and 5;
go to line 6.
     
  a. Abstract and recording fees 4a.                 
  b. Legal fees (including fees for title search and preparing documents) 4b. 250    
  c. Survey fees 4c.                 
  d. Title insurance 4d.                 
  e. Transfer or stamp taxes 4e.                 
  f. Amounts that the seller owed that you agreed to pay (back taxes or interest,
recording or mortgage fees, and sales commissions)
4f.                 
  g. Other 4g.                 
5.  Add lines 4a through 4g 5. 250  
6.  Cost of additions and improvements. Do not include any additions and improvements included on line 1 6. 2,000  
7.  Special tax assessments paid for local improvements, such as streets and sidewalks 7.               
8.  Other increases to basis 8.               
9.  Add lines 3, 5, 6, 7, and 8 9. 42,250  
10.  Depreciation allowed or allowable, related to the business use or rental of the home 10.       
11.  Other decreases to basis (see Decreases to Basis ) 11.                 
12.  Add lines 10 and 11 12.               
13.   Adjusted basis of home sold. Subtract line 12 from line 9. Enter here and on Worksheet 2, line 4 13. $42,250  
  
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Worksheet 2. Taxable Gain on Sale of Home—Illustrated Example 1 for Peter and Betty Clark

Part 1. Gain or (Loss) on Sale    
1. Selling price of home1. $395,000  
2. Selling expenses (including commissions, advertising and legal fees, and seller-paid loan charges)2. 25,000  
3. Subtract line 2 from line 1. This is the amount realized3. 370,000  
4. Adjusted basis of home sold (from Worksheet 1, line 13)4. 42,250  
5.  Gain or (loss) on the sale. Subtract line 4 from line 3. If this is a loss, stop here5. 327,750  
Part 2. Exclusion and Taxable Gain    
6. Enter any depreciation allowed or allowable on the property for periods after May 6, 1997.
If none, enter -0-
6. -0-  
7. Subtract line 6 from line 5. If the result is less than zero, enter -0-7. 327,750  
8. Aggregate number of days of nonqualified use after 12/31/20088. N/A  
9. Number of days taxpayer owned the property9. N/A  
10. Divide the amount on line 8 by the amount on line 9. Enter the result as a decimal (rounded to at least 3 places). But do not enter an amount greater than 1.0010. N/A  
11. Gain allocated to nonqualified use. (Line 7 multiplied by line 10)11. N/A  
12. Gain eligible for exclusion. Subtract line 11 from line 7.12. 327,750  
13. If you qualify to exclude gain on the sale, enter your maximum exclusion (see Maximum Exclusion ).
If you qualify for a reduced maximum exclusion, enter the amount from Worksheet 3, line 7. If you do
not qualify to exclude gain, enter -0-
13. 500,000  
14.  Exclusion. Enter the smaller of line 12 or line 1314. 327,750  
15.  Taxable gain. Subtract line 14 from line 5. Report your taxable gain as described under Reporting the Sale .
If the amount on this line is zero, do not report the sale or exclusion on your tax return. If the amount
on line 6 is more than zero, complete line 16
15. -0-  
16. Enter the smaller of line 6 or line 15. Enter this amount on line 12 of the Unrecaptured Section 1250 Gain
Worksheet in the instructions for Schedule D (Form 1040)
16. -0-  
taxmap/pubs/p523-005.htm#en_us_publink1000200811

Example 2.(p22)

The facts are the same as in Example 1, except that Peter and Betty Clark sold their home for $695,000 and they had no selling expenses. Their gain on the sale is $652,750. Since they are married, meet the ownership and use tests, and file a joint return for the year, they qualify to exclude $500,000 of the gain. They report the remaining gain of $152,750 ($652,750 – $500,000) on Schedule D (Form 1040). Worksheet 1 remains the same as shown in Example 1. Their completed Worksheet 2 is shown below, followed by the front page of the Clarks' Schedule D.
taxmap/pubs/p523-005.htm#en_us_publink1000207401
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Worksheet 2. Taxable Gain on Sale of Home—Illustrated Example 2 for Peter and Betty Clark

Part 1. Gain or (Loss) on Sale    
1. Selling price of home1. $695,000  
2. Selling expenses (including commissions, advertising and legal fees, and seller-paid loan charges)2.               
3. Subtract line 2 from line 1. This is the amount realized3. 695,000  
4. Adjusted basis of home sold (from Worksheet 1, line 13)4. 42,250  
5.  Gain or (loss) on the sale. Subtract line 4 from line 3. If this is a loss, stop here5. 652,750  
Part 2. Exclusion and Taxable Gain    
6. Enter any depreciation allowed or allowable on the property for periods after May 6, 1997. If none, enter -0-6. -0-  
7. Subtract line 6 from line 5. If the result is less than zero, enter -0-7. 652,750  
8. Aggregate number of days of nonqualified use after 12/31/20088. N/A  
9. Number of days taxpayer owned the property9. N/A  
10. Divide the amount on line 8 by the amount on line 9. Enter the result as a decimal (rounded to at least 3 places). But do not enter an amount greater than 1.0010. N/A  
11. Gain allocated to nonqualified use. (Line 7 multiplied by line 10)11. N/A  
12. Gain eligible for exclusion. Subtract line 11 from line 7.12. 652,750  
13. If you qualify to exclude gain on the sale, enter your maximum exclusion (see Maximum Exclusion ).
If you qualify for a reduced maximum exclusion, enter the amount from Worksheet 3, line 7. If you do
not qualify to exclude gain, enter -0-
13. 500,000  
14.  Exclusion. Enter the smaller of line 12 or line 1314. 500,000  
15.  Taxable gain. Subtract line 14 from line 5. Report your taxable gain as described under Reporting the Sale .
If the amount on this line is zero, do not report the sale or exclusion on your tax return. If the amount
on line 6 is more than zero, complete line 16
15. 152,750  
16. Enter the smaller of line 6 or line 15. Enter this amount on line 12 of the Unrecaptured Section 1250 Gain
Worksheet in the instructions for Schedule D (Form 1040)
16. -0-  
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Schedule D for Pete and Betty Clark Text DescriptionSchedule D for Pete and Betty Clark  
taxmap/pubs/p523-005.htm#en_us_publink1000200818

Example 3.(p24)

Emily White, a single person, bought a home in 1998. She lived in the home until May 31, 2007, when she moved out and put it up for rent. Emily rented her home until May 31, 2008. She moved back into the house and lived there until she sold it on January 12, 2009.
Emily can exclude gain on the sale of her home because she owned and lived in the home for at least 2 years of the 5-year period ending on the date of the sale.
Emily's records show the following.
Original cost$ 50,000
Legal fees for title search750
Back taxes paid for prior owner1,500
Improvements (deck)2,000
Selling price195,000
Selling expenses, including commission15,000
Depreciation claimed after May 6, 19971,791
Emily uses Worksheet 1 to figure the adjusted basis of the home she sold, $52,459. She uses Worksheet 2 to figure the gain on the sale, $127,541, and the amount of her exclusion, $125,750. Emily cannot exclude $1,791, the part of her gain equal to the depreciation claimed while the house was rented.
Emily reports her gain and exclusion in Part II of Schedule D (Form 1040). She enters $1,791 on line 12 of the Unrecaptured Section 1250 Gain Worksheet in the Schedule D (Form 1040) instructions. She has no gains or losses from the sale of property other than the gain from the sale of her home. Therefore, she also enters $1,791 on lines 13 and 18 of the worksheet and on line 19 of Schedule D. She then figures her tax using the Schedule D Tax Worksheet in the Schedule D (Form 1040) instructions.
Emily's completed Worksheet 1 appears next. Her completed Worksheet 2 and the front page of her Schedule D follow. Page 2 of Schedule D and her Unrecaptured Section 1250 Gain Worksheet are not shown.
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Worksheet 1. Adjusted Basis of Home Sold—Illustrated Example 3 for Emily White

Caution: See the Worksheet 1 Instructions before you use this worksheet.  
1.  Enter the purchase price of the home sold. (If you filed Form 2119 when you originally acquired that
home to postpone gain on the sale of a previous home before May 7, 1997, enter the adjusted basis of
the new home from that Form 2119.)
1. $50,000  
2.  Seller-paid points for home bought after 1990 (see Seller-paid points ). Do not include any seller-paid points
you already subtracted to arrive at the amount entered on line 1
2.               
3.  Subtract line 2 from line 1 3. 50,000  
4.  Settlement fees or closing costs (see Settlement fees or closing costs ). If line 1
includes the adjusted basis of the new home from Form 2119, skip lines 4a–4g and 5;
go to line 6
     
  a. Abstract and recording fees 4a.                 
  b. Legal fees (including fees for title search and preparing documents) 4b. 750    
  c. Survey fees 4c.                 
  d. Title insurance 4d.                 
  e. Transfer or stamp taxes 4e.                 
  f. Amounts that the seller owed that you agreed to pay (back taxes or interest,
recording or mortgage fees, and sales commissions)
4f. 1,500    
  g. Other 4g.                 
5.  Add lines 4a through 4g 5. 2,250  
6.  Cost of additions and improvements. Do not include any additions and improvements included on line 1 6. 2,000  
7.  Special tax assessments paid for local improvements, such as streets and sidewalks 7.               
8.  Other increases to basis 8.               
9.  Add lines 3, 5, 6, 7, and 8 9. 54,250  
10.  Depreciation allowed or allowable, related to the business use or rental of the home 10.   1,791    
11.  Other decreases to basis (see Decreases to Basis ) 11.                 
12.  Add lines 10 and 11 12. 1,791  
13.   Adjusted basis of home sold. Subtract line 12 from line 9. Enter here and on Worksheet 2, line 4 13. $52,459  
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Worksheet 2. Taxable Gain on Sale of Home—Illustrated Example 3 for Emily White

Part 1. Gain or (Loss) on Sale    
1. Selling price of home1. $195,000  
2. Selling expenses (including commissions, advertising and legal fees, and seller-paid loan charges)2. 15,000  
3. Subtract line 2 from line 1. This is the amount realized3. 180,000  
4. Adjusted basis of home sold (from Worksheet 1, line 13)4. 52,459  
5.  Gain or (loss) on the sale. Subtract line 4 from line 3. If this is a loss, stop here5. 127,541  
Part 2. Exclusion and Taxable Gain    
6. Enter any depreciation allowed or allowable on the property for periods after May 6, 1997.
If none, enter -0-
6. 1,791  
7. Subtract line 6 from line 5. If the result is less than zero, enter -0-7. 125,750  
8. Aggregate number of days of nonqualified use after 12/31/20088. N/A  
9. Number of days taxpayer owned the property9. N/A  
10. Divide the amount on line 8 by the amount on line 9. Enter the result as a decimal (rounded to at least 3 places). But do not enter an amount greater than 1.0010. N/A  
11. Gain allocated to nonqualified use. (Line 7 multiplied by line 10)11. N/A  
12. Gain eligible for exclusion. Subtract line 11 from line 7.12. 125,750  
13. If you qualify to exclude gain on the sale, enter your maximum exclusion (see Maximum Exclusion ).
If you qualify for a reduced maximum exclusion, enter the amount from Worksheet 3, line 7. If you do
not qualify to exclude gain, enter -0-
13. 250,000  
14.  Exclusion. Enter the smaller of line 12 or line 1314. 125,750  
15.  Taxable gain. Subtract line 14 from line 5. Report your taxable gain as described under Reporting the Sale .
If the amount on this line is zero, do not report the sale or exclusion on your tax return. If the amount
on line 6 is more than zero, complete line 16
15. 1,791  
16. Enter the smaller of line 6 or line 15. Enter this amount on line 12 of the Unrecaptured Section 1250 Gain
Worksheet in the instructions for Schedule D (Form 1040)
16. $1,791  
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taxmap/pubs/p523-005.htm#TXMP20207627
Schedule D for Emily White Text DescriptionSchedule D for Emily White