IRS Tax Tip – Tax considerations when selling a home

Issue Number: Tax Tip 2023-81

Tax considerations when selling a home

Many people move during the summer. Taxpayers who are selling their home may qualify to exclude all or part of any gain from the sale from their income when filing their tax return.

When selling a home, homeowners should think about:

Ownership and use
To claim the exclusion, the taxpayer must meet ownership and use tests. During the five-year period ending on the date of the sale, the homeowner must have owned the home and lived in it as their main home for at least two years.

Gains
Taxpayers who sell their main home for a capital gain may be able to exclude up to $250,000 of that gain from their income. Taxpayers who file a joint return with their spouse may be able to exclude up to $500,000. Homeowners excluding all the gain do not need to report the sale on their tax return unless a Form 1099-S was issued.

Losses
Some taxpayers experience a loss when their main home sells for less than what they paid for it. This loss is not deductible.

Multiple homes
Taxpayers who own more than one home can exclude the gain only on the sale of their main home. They must pay taxes on the gain from selling any other home.

Reported sale
Taxpayers who don’t qualify to exclude all of the taxable gain from their income must report the gain from the sale of their home when they file their tax return. Anyone who chooses not to claim the exclusion must report the taxable gain on their tax return. Taxpayers who receive Form 1099-S, Proceeds from Real Estate Transactions, must report the sale on their tax return even if they have no taxable gain.

Mortgage debt
Generally, taxpayers must report forgiven or canceled debt as income on their tax return. This includes people who had a mortgage workout, foreclosure or other canceled mortgage debt on their home. Taxpayers who had debt discharged, in whole or in part on a qualified principal residence can’t exclude that debt from income unless it was discharged before January 1, 2026, or a written agreement for the debt forgiveness was in place before January 1, 2026.

Possible exceptions
There are exceptions to these rules for some individuals, including persons with a disability, certain members of the military or intelligence community and Peace Corps workers.

More information:
Selling Your Home, Publication 523
Canceled Debts, Foreclosures, Repossessions, and Abandonments (For Individuals), Publication 4681
How Do I Report the Debt Forgiven on My Residence Due to Foreclosure, Repossession, Abandonment, or Because of a Loan Modification or Short Sale?