A taxpayer may qualify to exclude from their income all or part of any gain from the sale of their main home. The main home is the one in which the taxpayer lived most of the time.
To determine the amount of the exclusion, if any, complete the Sale of Main Home Worksheet located in the Schedule D Other Menu. The Sale of Main Home Worksheet consists of three worksheets taken from Publication 523, Selling Your Home:
- Worksheet 1 is used to determine the adjusted basis of the home, with the result carrying to Worksheet 2.
- Worksheet 2 is used to determine the taxable gain, if any, as well as the amount of depreciation to recapture as ordinary income, if any.
- Worksheet 3 is used to calculate the taxpayer and spouse maximum exclusion, with the result carrying to Worksheet 2.
Generally, if a taxpayer meets the following tests, they can exclude up to $250,000 ($500,000 if married and filing jointly) of the gain from the sale of a main home:
- The ownership test - The taxpayer must have owned the home for at least 2 out of the last 5 years leading up to the sale of the home. (For MFJ filers, either the taxpayer or spouse can meet this test.)
- The residence test - The taxpayer must have lived in the home as their main home for at least 2 of the past 5 years. (For MFJ filers, each spouse must meet this test individually.)
- The look-back test - The taxpayer can take the exclusion only once during a 2-year time period, so if the taxpayer didn't sell another home during the 2-year period before the date of sale (or didn't take an exclusion of the gain earned from the sale of another home), they meet the look-back test.
The required 2 years of ownership and residency during the 5-year period ending on the date of the sale do not have to be continuous, nor do they have to occur at the same time. A taxpayer, and spouse if filing MFJ, meets the tests if they can show that they owned and lived in the property as their main home for either 24 full months or 730 days (365 × 2) during the 5-year period ending on the date of sale.
To determine if a taxpayer qualifies to exclude all or part of the gain from the sale of their main home, refer to Worksheet 1 "Find Your Exclusion Limit" in IRS Publication 523.
When to report the sale
The sale of a main home must be reported on the taxpayer's federal income tax return in the year of sale if any of the following apply:
- There is a taxable gain on the sale of the home.
- Form 1099-S was received reporting the sale of the home even if there is not a taxable gain to report.
- The taxpayer elects to report a gain that is eligible for the exclusion.
Reporting a Loss - A loss from the sale of the taxpayer's main home cannot be deducted from income on the tax return.
More Than One Home - If the taxpayer sold more than one home, they can exclude only the gain from the sale of the main home, i.e., their primary residence. They must pay tax on the gain from selling any other home.
If the taxpayer has two homes and live in both of them, their main home is ordinarily the one they live in most of the time.
Publication 523, Selling Your Home, can assist if there are questions regarding which home is the taxpayer's main home.
Reporting the Sale
To access the Sale of Main Home Worksheet in the individual tax return in TaxSlayer Pro, from the Main Menu of the tax return (Form 1040) select:
- Income
- Capital Gain/Loss (Sch D) - Click the Other button.
- Sale of Main Home Worksheet
Completing the Sale of Main Home Worksheet
When you begin the Sale of Main Home Worksheet, you are prompted for several bits of information used in several of the worksheets:
Date Home was Sold - This is provided on Form 1099-S, if the taxpayer received it.
Selling Price of Home - Also provided on Form 1099-S.
Date Home was Purchased
Purchase Price of Home - This is the price on the date purchased, unadjusted by future improvements.
Number of Days in the Last 5 Years Property Was Main Home - Enter this information for the taxpayer, and if filing MFJ, for the spouse also.
Number of Days in the Last 5 Years Property Was Owned - Enter this information for the taxpayer, and if filing MFJ, for the spouse also.
Once you've passed those questions you'll reach the worksheet's primary menu to enter any other information needed for the calculation:
Selling Expenses - Enter any selling expenses incurred that were directly associated with the sale of the home. Selling expenses include real estate commissions, advertising costs, legal fees, and any other costs or fees paid in order to sell the home.
Adjusted Basis of Home Sold - Select this menu and, except for seller-paid points, enter any amounts that increase the home's basis:
- Seller Paid Points After 1990 - These are deducted from the purchase price.
- Settlement Fees and Closing Costs - Enter on the appropriate line any abstract and recording fees, legal fees, title search fees, surveyor fees, title insurance, transfer or stamp taxes, fees the taxpayer reimbursed the seller for, and any other settlement fees and closing costs.
-
Cost of additions and improvements - Improvements add to the value of the home, prolong its
useful life, or adapt it to new uses. If you are uncertain whether an expenditure qualifies as an improvement, refer to the chart in Publication 523. - Tax assessments for local improvements - Enter any special taxes or condominium association assessments related to the improvements (and not merely for repairs or maintenance).
- Other increases to basis - Any other increases that don't fall under another heading.
Likewise enter any amounts that decrease the home's basis:
- Depr. related to bus. or rental of home - Enter the amount of depreciation taken, if any, for business use of the home or for the portion of the home that was rented.
- Other decreases to basis - Any other amounts that decrease the basis.
Next select Maximum Exclusion to determine the maximum exclusion available to the taxpayer.
- Number of Days Property Was Main Home - This is the amount previously entered.
- Number of Days Property Was Owned - This is the amount previously entered.
- Number of Days Since previous exclusion - Enter the number of days between the date of the most recent sale of another home on which the taxpayer excluded gain and the date of the sale of this home.
- Do You Qualify for Reduced Max Exclusion - Refer to Worksheet 1 "Find Your Exclusion Limit" in IRS Publication 523. If the taxpayer is eligible for either the full exclusion or the partial exclusion, answer this question YES.
Finally, enter other items that can reduce the amount of the exclusion.
Depreciation taken after 05/06/97 - Enter the total of all depreciation deductions the taxpayer took or could have taken for the use of all or part of the home for business or rental purposes between May 7, 1997, and the date of sale.
Aggregate number of days of nonqualified use - Nonqualified use means any period after 2008 where neither the taxpayer nor the spouse (or former spouse) used the property as their main home, with the following three exceptions:
- Any portion of the 5-year period ending on the date of the sale or exchange after the last date the taxpayer or spouse (or former spouse) used the property as their main home;
- Any period (not to exceed 10 years) during which the taxpayer or spouse are serving on qualified official extended duty:
- As a member of the uniformed services;
- As a member of the Foreign Service of the United States; or
- As an employee of the intelligence community;
- Any other period of temporary absence (not to exceed an aggregate period of 2 years) due to change of employment, health conditions, or other unforeseen circumstances as may be specified by the IRS.
Thus, the aggregate number of days of nonqualified use equals the total number of days after 2008 and before the date of sale that neither the taxpayer nor the spouse (or former spouse) used the entire home as a main residence, excluding any days that occurred after the last day that the taxpayer or the spouse (or former spouse) used the entire property as their main home during the 5-year period prior to the date of sale.
Number of days taxpayer owned the property - Enter the total number of days the taxpayer owned the property from start to end.
Note: This is a guide on entering a sale of main home in the TaxSlayer Pro program. This is not intended as tax advice.
Additional Information: