A taxpayer may qualify to exclude from their income all or part of any gain from the sale of their main home. A main home is the one in which the taxpayer lives 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.
Generally, if a taxpayer meets the following tests, they can exclude up to $250,000 ($500,000 if married and file a joint return) 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.
- The residence test - The taxpayer must have lived in the home as their main home for at least 2 of the past 5 years.
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 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 IRS Publication 523, the section entitled "Does Your Home Sale Qualify for the Exclusion of Gain?"
When to report the sale
The sale of a main home must be reported on the taxpayer's federal income tax return 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 can not be deducted from income on the tax return.
More Than One Home - If you have more than one home, you can exclude gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.
- Example One: You own and live in a house in the city. You also own a beach house, which you use during the summer months. The house in the city is your main home; the beach house is not.
- Example Two: You own a house, but you live in another house that you rent. The rented house is your 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:
- Capital Gain/Loss (Sch D)
- 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:
- The date the home was sold;
- The date the home was purchased;
- The sale price of the home;
- The purchase price of the home;
- The number of days in the last 5 years that the the property was the taxpayer's (and the spouse's if applicable) main home;
- The number of days in the last 5 years that the taxpayer (and the spouse if applicable) owned the property.
Once you've passed those questions you'll reach the worksheet's 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 - Enter any amounts that increase or decrease the basis of the home. Include settlement fees and closing costs, the cost of additions and improvements and any other increase/decrease to the basis of the home.
Depreciation take after 05/06/97 - If the home had also been rental property, enter the amount of depreciation to recapture.
Note: This is a guide on entering a sale of main home in the TaxSlayer Pro program. This is not intended as tax advice.