With a red hot housing market in 2021, tons of people have been selling their homes.
A reminder on calculating gain or loss from the sale of your primary home. You start with the amount of gross proceeds reported in box 2 of Form 1099-Sand subtract selling expenses such as commissions to arrive at amount realized.
You then reduce that figure by your tax basis in the home to come up with gain or loss. Taxpayers who have owned and used the property as their principal residence for at least two out of five years before the sale can exclude up to $250,000 of the gain/$500,000 for joint filers.
Any gain in excess of the $250,000 or $500,000 exclusion is taxed at capital gains rates. Losses from sales of primary homes aren’t deductible.
IRS Publication 523 has details, including whether you need to report the sale at all. If you sell a main home that you previously used as a vacation home; some or all of the gain is ineligible for the home-sale exclusion if the house was converted to personal use after 2008. The portion of the gain that is taxed is based on the ratio of the period of time after 2008 that the home was used as a second residence or rented out to the total time that the seller owned the house. The remaining gain is eligible for the $250,000 or $500,000 home-sale exclusion.
What? You expected this to be clear on concise? We are talking about taxes…