Do you owe capital gains tax when you sell your home?
How the IRS home-sale exclusion works, who qualifies, and how to figure your gain before you sell.
No obligation. No pressure. Takes about 2 minutes.
The short answer
If you owned and lived in the home as your main home for at least two of the five years before the sale, you can usually exclude up to $250,000 of gain from your income, or up to $500,000 on a joint return. You can't use the exclusion if you took it on another home in the two years before. Gain above the limit, or on a home that doesn't qualify, is reported as a capital gain.
Step by step
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1
Figure your gain
The IRS says to subtract your adjusted basis from the amount realized. The amount realized is the sale price minus selling expenses such as commissions, advertising and legal fees. Your basis starts with what you paid and goes up with improvements like a new roof, an addition or a remodeled kitchen.
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2
Check the two-out-of-five-year tests
You need to have owned the home for at least 24 months and lived in it as your residence for at least 24 months of the five years before the sale. Publication 523 also bars the exclusion if you acquired the home in a like-kind exchange in the past five years.
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3
See if a partial exclusion fits
If you fall short because of a job move at least 50 miles farther away, health reasons, or an unforeseeable event such as divorce, death or job loss, Publication 523 allows a reduced exclusion based on the months you do have.
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4
Know the special cases
A surviving spouse who hasn't remarried may claim up to $500,000 if the sale is within two years of the spouse's death and the other tests are met. Members of the uniformed services, Foreign Service and intelligence community on qualified extended duty can suspend the five-year period for up to 10 years.
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5
Report it if you need to
If you get a Form 1099-S or can't exclude all of the gain, Topic 701 says to report the sale on Schedule D and Form 8949. A loss on your main home can't be deducted.
Sources: IRS Topic No. 701, Sale of Your Home ยท IRS Publication 523, Selling Your Home
This is general information from IRS publications, not tax advice. Your situation may have details that change the answer; talk with a tax professional before you rely on it.
Cash offer vs listing
Example: a $250,000 home
| Offer | $205,000 |
|---|---|
| Repairs | $0 |
| Commissions | $0 |
| Closing costs | $0 |
| You walk away with | $205,000 |
| In 7 to 14 days | |
| Sale price | $250,000 |
|---|---|
| Repairs | about $8,000 |
| Commissions | about $13,800 |
| Closing and holding | about $6,000 |
| You walk away with | about $222,200 |
| In 60 to 90 days | |
Example only. Your numbers depend on your home and market.
Whether you sell for cash or list, the sale price and your selling costs change the gain, so it helps to see both net numbers side by side before you talk to your tax professional.
Frequently asked questions
How much gain can I exclude when I sell my house?
Up to $250,000, or up to $500,000 on a joint return, if you owned and lived in the home as your main home for at least two of the five years before the sale and didn't use the exclusion on another home in the prior two years.
Can I deduct a loss when I sell my home?
No. The IRS says a loss on the sale of your main home is not deductible.
What if I haven't lived there two years?
You may qualify for a partial exclusion if you moved for work at least 50 miles farther away, for health reasons, or because of an unforeseeable event such as divorce, death or job loss. Publication 523 explains how to figure it.
Who are you?
We are real estate investors based in Baltimore, helping homeowners since 2016. We buy houses directly for cash. We are not a licensed real estate brokerage and do not list homes ourselves; if listing could get you more, we show you the math so you can choose.