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.
Publication 523 Worksheet
To determine the amount of the exclusion, if any, complete the Sale of Main Home Worksheet located in the Schedule D menu.
In TaxSlayer ProWeb, the Sale of Main Home Worksheet consists of three worksheets:
- 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.
Qualifying for the Maximum Exclusion
Generally, if a taxpayer meets the following four 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 a married couple filing jointly, only one spouse has to meet the ownership requirement.
- The residence test - The taxpayer must have lived in the home as their main home for at least 24 months of the past 5 years. For a married couple filing jointly, each spouse must meet the residence requirement individually to get the full exclusion.
- The lookback test - The taxpayer must not have sold another home during the 2-year period before the date of sale, or the taxpayer did sell another home during the 2-year period but didn't take an exclusion of the gain earned from it.
- The automatic exclusion test - Either (a) the taxpayer didn't acquire the property through a like-kind exchange (section 1031 exchange) during the past 5 years, or (b) the taxpayer is not subject to expatriate tax.
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.
There are several notable exceptions to the tests. If any of these apply, refer to IRS Publication 523 for more information.
- A separation or divorce occurred during the ownership of the home.
- The death of a spouse occurred during the ownership of the home.
- The taxpayer was a service member during the ownership of the home.
- The sale involved vacant land.
- The taxpayer's previous home was destroyed or condemned.
- The taxpayer owned a remainder interest, i.e., the right to own a home in the future, and they sold that right.
- The taxpayer acquired or is relinquishing the home in a like-kind exchange.
- The taxpayer used a portion of the real property, separate from the living space, for business or rental use, and didn’t use any of the separate portion for residential use for 2 years out of the 5 years leading up to the sale.
- The taxpayer or spouse (or former spouse) used the entire property as a vacation home or rental after 2008.
Qualifying for the Partial Exclusion
A taxpayer who doesn't qualify for the maximum exclusion may qualify for a partial exclusion (or "reduced maximum" exclusion) of gain if the main reason for selling the home was due to a change in workplace location, a health issue, or an unforeseeable event.
See IRS Publication 523 for more detail on each of these reasons.
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 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 lives 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 is a question regarding which home is the taxpayer's main home.
Reporting the Sale in ProWeb
To access the Sale of Main Home Worksheet in the individual tax return in TaxSlayer ProWeb, from the Federal Section of the tax return select:
- Income
- Schedule D/Form 8949
- Sale of Main Home Worksheet
The worksheets are divided into two parts: Sale of Home and Adjustments. Enter information as needed into each part. A field name with a red asterisk is required.
Sale of Home
Date of purchase *
MM/DD/YYYY
Enter the date the home was purchased.
Purchase price *
$
Enter the original purchase price of the home. If the taxpayer built the home, be sure to include the cost of the land.
Date of sale *
MM/DD/YYYY
Enter the date the home was sold. It must be in the current year.
Sale price *
$
Enter the sale price. If the taxpayer received Form 1099-S, use the amount shown on that form.
Allowable Depreciation related to the business use or rental of the home
$
Enter any depreciation the taxpayer took or was allowed to take for the use of the home for business or rental purposes. This amount reduces the home's basis.
Depreciation taken after 05/06/1997
$
Enter any depreciation the taxpayer took or was allowed to take for the use of the home for business or rental purposes after May 6, 1997. This amount is not included in the exclusion calculation and is treated as an unrecaptured section 1250 gain.
Seller paid points after 1990
$
Any mortgage points the seller paid for the taxpayer when the home was purchased, if either of these is true:
- The taxpayer purchased the home between January 1, 1991, and April 3, 1994, and deducted the points as home mortgage interest in the year paid, or
- The taxpayer bought the home after April 3, 1994 (regardless of whether they deducted the points).
This amount reduces the home's basis.
How many days in the last 5 years was the home your main home?
Enter the number of days in the last 5 years the home was the taxpayer's main home. For a married couple filing jointly, enter the number of days for each spouse. (Each spouse must meet the residence requirement individually for a married couple filing jointly to get the full exclusion.)
How many days in the last 5 years did you own your home?
Enter the number of days in the last 5 years the taxpayer, or spouse if filing jointly, owned the home. (Unlike the main home test, for a married couple filing jointly, only one spouse has to meet the ownership requirement.)
How many days since your previous exclusion?
If the taxpayer has excluded gain from the sale of a previous main home, enter the number of days between the sale date of that home and this home.
Number of days taxpayer owned the property
- Check here if the taxpayer received the First-time Homebuyers Credit AND you received the credit in 2008 OR you did NOT meet the minimum ownership requirements to exclude repayment of the credit. - Ignore this question after 2024.
- Check here if you qualify for the Maximum Exclusion or the Reduced Maximum Exclusion. -
Does return qualify for $500,000 max exclusion - If the previous box is checked, this question will appear. Select Yes or No as appropriate.
Adjustments
Legal fees
$
Legal fees when the home was purchased, such as for title search or document preparation, are added to the home's basis.
Surveys
$
Survey fees when the home was purchased are added to the home's basis.
Title Insurance
$
Title insurance when the home was purchased is added to the home's basis.
Fees that the seller owed that you agreed to pay
$
At the time the home was purchased, amounts the seller owed that the taxpayer agreed to pay, such as back taxes or interest, recording or mortgage fees, and sales commissions, are added to the home's basis.
Other fees
$
Enter here any other fees that directly related to completing the sale of the home, in other words, fees that would not have occurred but for the home being sold. This amount is added to the home's basis.
Abstract and recording fees
$
Abstract or recording fees paid at the time of purchase are added to the home's basis.
Transfer of stamp fees
$
Transfer tax or stamp tax fees paid at the time of purchase are added to the home's basis.
Selling expenses
$
Selling expenses, such as the real estate agent's sales commission, advertising fees, legal fees, and mortgage points or other loan charges the taxpayer paid that normally would have been paid by the buyer, reduce the amount realized on the sale.
Cost of additions and improvements that you made to your home
$
The cost of additions and improvements to the home that are still part of the home are added to the home's basis.
Tax assessments that you paid for sidewalks, streets, and other local improvements
$
Special assessments for local improvements (such as special tax or condominium association assessments that aren’t merely for repairs or maintenance) are added to the home's basis.
Other increases to your basis
$
Enter the total of any adjustments that increase the home's basis not already included above, such as amounts to repair damage to the home or the land due to a casualty event, real estate taxes paid to the seller at the time the home was purchased that weren't repaid, and other settlement fees and closing costs.
Decreases to your basis
$
Enter the total of any adjustments that decrease the home's basis, such as the following:
- Casualty losses claimed as a deduction;
- Insurance payments received for casualty losses;
- Payments for granting an easement, conservation restriction, or right-of-way;
- Energy credits or subsidies that offset improvements;
- Adoption credits or nontaxable adoption assistance program payments;
- Real estate taxes paid by the seller that the taxpayer didn't reimburse;
- Canceled or forgiven mortgage debt that was excluded from income;
- Sales tax paid on the home that was claimed as an itemized deduction;
- The value of temporary housing provided by the home builder;
- Gain that was postponed from the sale of a previous home sold before 5/7/1997.
Troubleshooting not getting the maximum exclusion
If the worksheet is not giving the maximum exclusion but you believe it should be, check two things:
- If this is a married couple filing jointly, the form needs to belong to the couple jointly to get the maximum $500,000 exclusion. If the form belongs to only the taxpayer or the spouse, the maximum exclusion is $250,000.
- The check box for "Check here if you qualify for the Maximum Exclusion or the Reduced Maximum Exclusion" must be checked for any exclusion to calculate.
Note: This is a guide on completing the Sale of Main Home Worksheet in TaxSlayer ProWeb. This is not intended as tax advice.
Additional Information: