In today’s competitive real estate market, selling your home can lead to unexpected tax implications. Knowing how the home sale tax exclusion works can help you save money and avoid surprises. Here’s everything you need to know:

What Is the Home Sale Tax Exclusion?

The home sale tax exclusion allows you to exclude up to $250,000 of gain from your taxable income if you’re a single filer, or $500,000 if you’re married and filing jointly. To qualify, you must meet the eligibility test, which requires that you’ve owned and used the property as your primary residence for at least two of the five years leading up to the sale.

Who Qualifies for the Home Sale Tax Exclusion?

Certain exceptions apply to these rules. For example, individuals with disabilities, military personnel, and government or Peace Corps workers may qualify under special provisions. Consulting a tax professional can help determine if these exceptions apply to you.

What Are the Exclusion Limits?

With rising home prices, many homeowners are finding their gains exceed the exclusion limits, making some sales partially taxable. If you can exclude your entire gain, you may not need to report the sale on your tax return.

When Must You Report the Sale?

You must report the sale if part of the gain is taxable, if you choose not to claim the exclusion, or if you receive Form 1099-S, Proceeds from Real Estate Transactions. In such cases, the Net Investment Income Tax may also apply.

How Often Can You Claim the Exclusion?

The exclusion can only be claimed once every two years, with certain exceptions for unforeseen circumstances.

Does the Exclusion Apply to All Homes?

The exclusion applies only to your primary residence. If you own multiple properties, only the home you lived in most of the time qualifies for the exclusion.

Special Rules for First-Time Homebuyer Credit

If you claimed the first-time homebuyer credit when purchasing your home, specific rules apply when you sell the property. It’s essential to review these guidelines to understand your tax obligations.

Can You Deduct a Loss from Selling Your Home?

If you sell your home at a loss, you cannot deduct that loss on your tax return. This rule applies to personal-use properties like your primary residence.

Do You Need to Update Your Address?

After selling your home, remember to update your address with the IRS using Form 8822. If you purchased health insurance through the Health Insurance Marketplace, notify them of your move as well.

Why Consult a Tax Professional?

Understanding the home sale tax exclusion can save you money and make the selling process smoother. A tax professional can provide personalized advice tailored to your situation.