Tax Tips for Selling Your Residence

Many homeowners are able to exclude the income from the sale of their primary residence from their income. The ownership test needed to realize this exclusion requires that you - for the 5-year period ended on the date of sale - you must have owned the home for at least two years and lived in the home as your main home for at least two years. If you qualify, these gains can be excluded for up to $250,000 ($500,000 for joint filings) and do not have to be reported on your tax return. If you do not qualify, then you must report the sale of your home on Schedule D of your tax return.

It is also important to note that you cannot deduct a loss from the sale of your main home on your taxes. Moreover, if you have more than one home, you can exclude gains only form the sale of your main home and must pay taxes on the sal eo fany 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. Those who require assistance figuring out the terms of their sale can find worksheets included in Publication 523 with the IRS, Selling Your Home, that can help you determine:

1. Adjusted basis of the home you sold.
2. Gain (or loss) on the sale.
3. Gain that you can exclude.

A final key point to understand is business or rental of a home. You may be able to exclude your gain from the sale of your home if you have used for business or to produce rental income. But you must meet the ownership and use test mentioned above in order to qualify for these deductions. In the end, there are many ways in which you can creatively avoid paying taxes on the sale of your home and these are the rules you must follow!

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