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. Fill out the Sale of Main Home Worksheet in the Schedule D, Other Menu to see if any of the gain from the sale of their main home can be excluded.
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 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 ownership test)
- The taxpayer must have lived in the home as their main home for at least 2 of the past 5 years – (the residence 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 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?”
Reporting 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.
To access the Sale of Main Home Worksheet for in the tax program, from the Main Menu of the Tax Return (Form 1040) select:
- Income Menu
- Capital Gain/Loss (Sch D)
- Other
- Sale of Main Home Worksheet
Completing the Sale of Main Home Worksheet
You will be prompted to enter the date the home was sold and the date the home was purchased.
You will be prompted to enter the sale price of the home and the purchase price of the home.
You will be prompted to enter 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.
You will be prompted to enter the number of days in the last 5 years that the taxpayer (and the spouse’s if applicable) owned the property.
Line 3. 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.
Line 5. 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.
NOTE: This is a guide on entering a sale of main home into the Keystone Tax Solutions Pro program. This is not intended as tax advice.
Additional Information: