skip navigation

Search Help
Navigation Help

Topic Index
ABCDEFGHI
JKLMNOPQR
STUVWXYZ#

Affordable Care Act
Tax Topic Index

International
Tax Topic Index

FAQs
Forms
Publications
Tax Topics

Comments
About Tax Map

IRS.gov Website
Publication 523
taxmap/pubs/p523-005.htm#en_us_publink1000200792

Reporting the Sale(p19)

rule
Do not report the 2013 sale of your main home on your tax return unless:
If you have a gain that you cannot or choose not to exclude, if you received a Form 1099-S, or if you have a deductible loss, report the sale on your tax return. Report the sale on Part I or Part II of Form 8949 as a short-term or long-term transaction, depending on how long you owned the home. Report the proceeds from the sale (Worksheet 2, line 1) in column (d) and the cost or other basis (Worksheet 2, line 4) in column (e). If there are any selling expenses, enter "E" in column (f) and the necessary adjustment in column (g). See the Instructions for Form 8949.
If you can exclude some or all of your gain on the sale of your main home, enter "H" in column (f). Enter the amount of the excluded (nontaxable) gain as a negative number (in parenthesis) in column (g). See the Instructions for Form 8949.
If you have a loss on the sale of your main home for which you received a Form 1099-S, you must report the sale on Form 8949 even though the loss is not deductible. Enter "L" in column (f) and enter the amount of the nondeductible loss as a positive number in column (g). See the Instructions for Form 8949.
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)

rule
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 14 of Worksheet 2) on line 15 of Form 6252.
taxmap/pubs/p523-005.htm#en_us_publink1000200795
Seller-financed mortgage.(p19)
If you sell your home and hold a note, mortgage, or other financial agreement, the payments you receive in most cases 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), Interest and Ordinary Dividends. 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 either 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).(p20)
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)
For more information on installment sales, see Publication 537, Installment Sales.
taxmap/pubs/p523-005.htm#en_us_publink1000200798

Comprehensive Examples(p20)

rule
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 1969. (They did not postpone the gain on the sale of their previous home.) They lived in it as their main home until they sold it in February 2013. 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.
Because the Clarks are married and file a joint return for the year, they qualify to exclude the full amount of their gain and the settlement agent does not file or issue them a Form 1099-S. Because they do not receive a Form 1099-S and 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
Pencil

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 13.40,000 
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 fees4a.   
 b.Legal fees (including fees for title search and preparing documents)4b.250   
 c.Survey fees4c.   
 d.Title insurance4d.   
 e.Transfer or stamp taxes4e.   
 f.Amounts that the seller owed that you agreed to pay (back taxes or interest,
recording or mortgage fees, and sales commissions)
4f.   
 g.Other4g.   
5. Add lines 4a through 4g5. 250 
6. Cost of additions and improvements. Do not include any additions and improvements included on line 16.2,000 
7. Special tax assessments paid for local improvements, such as streets and sidewalks7. 
8. Other increases to basis8. 
9. Add lines 3, 5, 6, 7, and 89.42,250 
10. Depreciation allowed or allowable, related to the business use or rental of the home10.     
11. Other decreases to basis (see Decreases to Basis), Do not include any postponed gain that reduced the adjusted basis of the new home reported from Form 2119 on line 1 11.   
12. Add lines 10 and 1112. 
13. Adjusted basis of home sold. Subtract line 12 from line 9. Enter here and on Worksheet 2, line 4 13.$42,250 
taxmap/pubs/p523-005.htm#en_us_publink1000207398
Pencil

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 here 5.327,750 
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 2008. If none, enter -0-.
If line 8 is equal to zero, skip to line 12 and enter the amount from line 7 on line 12
8.-0- 
9. Number of days taxpayer owned the property9. 
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 1.00 10. 
11. Gain allocated to nonqualified use. (Line 7 multiplied by line 10)11. 
12. Gain eligible for exclusion. Subtract line 11 from line 712.327,750 
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 13 14.327,750 
15. Taxable gain. Subtract line 14 from line 5. Report your taxable gain as described under Reporting the Sale.
If the amount on 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. Their gain on the sale is $627,750. Because they are married, meet the ownership and use tests, have no period of non-qualified use, and file a joint return for the year, they can exclude $500,000 of the gain.
Worksheet 1 remains the same as shown in Example 1. Their completed Worksheet 2 is shown next.
The Clarks report the sale of their home on Form 8949 and Schedule D (Form 1040). On their Form 8949, Part II, they report their selling price of $695,000 in column (d), and their adjusted basis of $42,250 in column (e). Because the adjustments they enter in column (g) include selling expenses (Code E) and excluded gain (Code H), they enter "EH" in column (f). In column (g) they enter $525,000 (the sum of their exclusion, $500,000, and their selling expenses, $25,000) as a negative number. Because their realized gain is $627,750 and they exclude $500,000, they enter $127,750 in column (h).
On their Schedule D (Form 1040), line 10, the Clarks include the selling price of $695,000 in column (d), their adjusted basis of $42,250 in column (e), their adjustments of $525,000 as a negative number in column (g), and their recognized gain of $127,750 in column (h).
taxmap/pubs/p523-005.htm#en_us_publink1000273621
Pencil

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)2.25,000 
3. Subtract line 2 from line 1. This is the amount realized3.670,000 
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 here 5.627,750 
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 -0-7.627,750 
8. Aggregate number of days of nonqualified use after 2008. If none, enter -0-.
If line 8 is equal to zero, skip to line 12 and enter the amount from line 7 on line 12
8.-0- 
9. Number of days taxpayer owned the property9. 
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 1.00 10. 
11. Gain allocated to nonqualified use. (Line 7 multiplied by line 10)11. 
12. Gain eligible for exclusion. Subtract line 11 from line 712.627,750 
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 13 14.500,000 
15. Taxable gain. Subtract line 14 from line 5. Report your taxable gain as described under Reporting the Sale.
If the amount on line 6 is more than zero, complete line 16
15.127,750 
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- 
taxmap/pubs/p523-005.htm#en_us_publink1000200818

Example 3.(p23)

Emily White, a single person, bought a home on May 1, 2001. She lived in the home until May 31, 2011, when she moved out and put it up for rent. Emily rented her home from June 1, 2011, until May 31, 2012. She moved back into the home and lived there until she sold it on January 11, 2013. She has no other gains or losses from the sale or exchange of any other property.
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, $115,061. Emily cannot exclude $1,791, the part of her gain equal to the depreciation claimed while the home was rented, nor can she exclude $10,689, the part of her gain allocated to nonqualified use.
Emily's completed Worksheet 1 appears next. Her completed Worksheet 2 follows.
Emily reports the sale in Part II of Form 8949 and Part II of Schedule D (Form 1040). On her Form 8949, Part II, she checks Box F. On line 1, she reports her selling price of $195,000 in column (d) and her adjusted basis of $52,459 in column (e). In column (g), she reports the sum of her exclusion and her selling expenses ($130,061) as a negative number. Because the adjustments she enters in column (g) include her selling expenses (Code E) and her exclusion (Code H), she enters "EH" in column (f). Because her realized gain is $127,541 and her exclusion is $115,061, she enters $12,480 as her recognized gain in column (h).
On her Schedule D (Form 1040), line 10, she enters her selling price of $195,000 in column (d), her adjusted basis of $52,549 in column (e), her adjustments of $130,061 as a negative number in column (g), and her recognized gain of $12,480 in column (h).
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.
taxmap/pubs/p523-005.htm#en_us_publink1000207399
Pencil

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 13.50,000 
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 fees4a.   
 b.Legal fees (including fees for title search and preparing documents)4b.750   
 c.Survey fees4c.   
 d.Title insurance4d.   
 e.Transfer or stamp taxes4e.   
 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.Other4g.   
5. Add lines 4a through 4g5. 2,250 
6. Cost of additions and improvements. Do not include any additions and improvements included on line 16.2,000 
7. Special tax assessments paid for local improvements, such as streets and sidewalks7. 
8. Other increases to basis8. 
9. Add lines 3, 5, 6, 7, and 89.54,250 
10. Depreciation allowed or allowable, related to the business use or rental of the home10.  1,791   
11. Other decreases to basis (see Decreases to Basis). Do not include any postponed gain that reduced the adjusted basis of the new home reported from Form 2119 on line 1 11.   
12. Add lines 10 and 1112.1,791 
13. Adjusted basis of home sold. Subtract line 12 from line 9. Enter here and on Worksheet 2, line 4 13.$52,459 
taxmap/pubs/p523-005.htm#en_us_publink1000207402
Pencil

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 here 5.127,541 
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 2008. If none, enter -0-.
If line 8 is equal to zero, skip to line 12 and enter the amount from line 7 on line 12
8.365 
9. Number of days taxpayer owned the property9.4,272 
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 1.00 10..085 
11. Gain allocated to nonqualified use. (Line 7 multiplied by line 10)11.10,689 
12. Gain eligible for exclusion. Subtract line 11 from line 712.115,061 
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 13 14.115,061 
15. Taxable gain. Subtract line 14 from line 5. Report your taxable gain as described under Reporting the Sale.
If the amount on line 6 is more than zero, complete line 16
15.12,480 
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