Publication 17
taxmap/pub17/p17-081.htm#en_us_publink1000172387To figure the gain or loss on the sale of your main home, you must know the selling price, the amount realized, and the adjusted basis. Subtract the adjusted basis from the amount realized to get your gain or
loss.
| | | Selling price | |
| | − | Selling expenses | |
| | | Amount realized | |
| | | Amount realized | |
| | − | Adjusted basis | |
| | | Gain or loss | |
The selling price is the total amount you receive for your home. It includes money and the fair market value of any other property or any other services you receive and all notes, mortgages or other debts assumed by the buyer as part of the sale.
taxmap/pub17/p17-081.htm#en_us_publink1000172391You may have to sell your home because of a job transfer. If your employer pays you for a loss on the sale or for your selling expenses, do not include the payment as part of the selling price. Your employer will include it as wages in box 1 of your Form W-2, and you will include it in your income on Form 1040, line
7.
taxmap/pub17/p17-081.htm#en_us_publink1000172392If you grant an option to buy your home and the option is exercised, add the amount you receive for the option to the selling price of your home. If the option is not exercised, you must report the amount as ordinary income in the year the option expires. Report this amount on Form 1040, line
21.
taxmap/pub17/p17-081.htm#en_us_publink1000172393If you received Form 1099-S, Proceeds From Real Estate Transactions, box 2 (Gross proceeds) should show the total amount you received for your
home.
However, box 2 will not include the fair market value of any services or property other than cash or notes you received or will receive. Instead, box 4 will be checked to indicate your receipt or expected receipt of these
items.
taxmap/pub17/p17-081.htm#en_us_publink1000172394The amount realized is the selling price minus selling expenses.
taxmap/pub17/p17-081.htm#en_us_publink1000172395Selling expenses include:
- Commissions,
- Advertising fees,
- Legal fees, and
- Loan charges paid by the seller, such as loan placement fees or
"points."
While you owned your home, you may have made adjustments (increases or decreases) to the basis. This adjusted basis must be determined before you can figure gain or loss on the sale of your home. For information on how to figure your home's adjusted basis, see
Determining Basis, later.
To figure the amount of gain or loss, compare the amount realized to the adjusted basis.
taxmap/pub17/p17-081.htm#en_us_publink1000172399If the amount realized is more than the adjusted basis, the difference is a gain and, except for any part you can exclude, in most cases is
taxable.
taxmap/pub17/p17-081.htm#en_us_publink1000172400If the amount realized is less than the adjusted basis, the difference is a loss. A loss on the sale of your main home cannot be
deducted.
taxmap/pub17/p17-081.htm#en_us_publink1000172401If you and your spouse sell your jointly owned home and file a joint return, you figure your gain or loss as one taxpayer.
taxmap/pub17/p17-081.htm#en_us_publink1000172402If you file separate returns, each of you must figure your own gain or loss according to your ownership interest in the home. Your ownership interest is generally determined by state
law.
taxmap/pub17/p17-081.htm#en_us_publink1000172403If you and a joint owner other than your spouse sell your jointly owned home, each of you must figure your own gain or loss according to your ownership interest in the home. Each of you applies the rules discussed in this chapter on an individual
basis.
taxmap/pub17/p17-081.htm#en_us_publink1000172404Some special rules apply to other dispositions of your main home.
taxmap/pub17/p17-081.htm#en_us_publink1000172405If your home was foreclosed on or repossessed, you have a disposition. See Publication
4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments, to determine if you have ordinary income, gain, or loss.
If you abandon your home, see Publication
4681 to determine if you have ordinary income, gain, or loss.
If you trade your old home for another home, treat the trade as a sale and a purchase.
taxmap/pub17/p17-081.htm#en_us_publink1000172413You owned and lived in a home with an adjusted basis of $41,000. A real estate dealer accepted your old home as a trade-in and allowed you $50,000 toward a new home priced at $80,000. This is treated as a sale of your old home for $50,000 with a gain of $9,000 ($50,000 –
$41,000).
If the dealer had allowed you $27,000 and assumed your unpaid mortgage of $23,000 on your old home, your sales price would still be $50,000 (the $27,000 trade-in allowed plus the $23,000 mortgage
assumed).
taxmap/pub17/p17-081.htm#en_us_publink1000172414If you transfer your home to your spouse or you transfer it to your former spouse incident to your divorce, you in most cases have no gain or loss. This is true even if you receive cash or other consideration for the home. As a result, the rules in this chapter do not apply.
taxmap/pub17/p17-081.htm#en_us_publink1000172415If you need more information, see
Transfer to spouse
in Publication
523 and
Property Settlements
in Publication 504, Divorced or Separated Individuals.
You have a disposition when your home is destroyed or condemned and you receive other property or money in payment, such as insurance or a condemnation award. This is treated as a sale and you may be able to exclude all or part of any gain from the destruction or condemnation of your home, as explained later under
Special Situations.
You need to know your basis in your home to figure any gain or loss when you sell it. Your basis in your home is determined by how you got the home. Generally, your basis is its cost if you bought it or built it. If you got it in some other way (inheritance, gift, etc.), your basis is generally either its fair market value when you received it or the adjusted basis of the previous
owner.
While you owned your home, you may have made adjustments (increases or decreases) to your home's basis. The result of these adjustments is your home's adjusted basis, which is used to figure gain or loss on the sale of your home. See
Adjusted Basis, later.
You can find more information on basis and adjusted basis in
chapter 13 of this publication and in Publication 523.
The cost of property is the amount you paid for it in cash, debt obligations, other property, or services.
taxmap/pub17/p17-081.htm#en_us_publink1000172420If you bought your home, your basis is its cost to you. This includes the purchase price and certain settlement or closing costs. In most cases, your purchase price includes your down payment and any debt, such as a first or second mortgage or notes you gave the seller in payment for the home. If you build, or contract to build, a new home, your purchase price can include costs of construction, as discussed in Publication
523.
taxmap/pub17/p17-081.htm#en_us_publink1000172421When you bought your home, you may have paid settlement fees or closing costs in addition to the contract price of the property. You can include in your basis some of the settlement fees and closing costs you paid for buying the home, but not the fees and costs for getting a mortgage loan. A fee paid for buying the home is any fee you would have had to pay even if you paid cash for the home (that is, without the need for
financing).
Chapter 13
lists some of the settlement fees and closing costs that you can include in the
basis of property, including your home. It also lists some settlement costs that
cannot be included in basis.
Also see Publication
523 for additional items and a discussion of basis other than cost.
Adjusted basis is your cost or other basis increased or decreased by certain amounts. To figure your adjusted basis, you can use Worksheet 1 in Publication
523.
 | Do not use Worksheet 1 if you acquired an interest in your home from a decedent who died in 2010 and whose executor filed Form 8939, Allocation of Increase in Basis for Property Acquired From a
Decedent. |
taxmap/pub17/p17-081.htm#en_us_publink1000172423These include the following.
- Additions and other improvements that have a useful life of more than 1
year.
- Special assessments for local improvements.
- Amounts you spent after a casualty to restore damaged property.
These add to the value of your home, prolong its useful life, or adapt it to new uses. You add the cost of additions and other improvements to the basis of your
property.
For example, putting a recreation room or another bathroom in your unfinished basement, putting up a new fence, putting in new plumbing or wiring, putting on a new roof, or paving your unpaved driveway are improvements. An addition to your house, such as a new deck, a sunroom, or a new garage, is also an improvement.
taxmap/pub17/p17-081.htm#en_us_publink1000172425These maintain your home in good condition but do not add to its value or prolong its life. You do not add their cost to the basis of your property.
Examples of repairs include repainting your house inside or outside, fixing your gutters or floors, repairing leaks or plastering, and replacing broken window
panes.
taxmap/pub17/p17-081.htm#en_us_publink1000172426These include the following.
- Discharge of qualified principal residence indebtedness that was excluded from
income.
- Some or all of the cancellation of debt income that was excluded due to your bankruptcy or insolvency. For details, see Publication
4681.
- Gain you postponed from the sale of a previous home before May 7,
1997.
- Deductible casualty losses.
- Insurance payments you received or expect to receive for casualty losses.
- Payments you received for granting an easement or right-of-way.
- Depreciation allowed or allowable if you used your home for business or rental purposes.
- Residential energy credit (generally allowed from 1977 through 1987) claimed for the cost of energy improvements that you added to the basis of your home.
- Nonbusiness energy property credit (allowed beginning in 2006 but not for 2008) claimed for making certain energy saving improvements you added to the basis of your
home.
- Residential energy efficient property credit (allowed beginning in 2006) claimed for making certain energy saving improvements you added to the basis of your
home.
- Adoption credit you claimed for improvements added to the basis of your home.
- Nontaxable payments from an adoption assistance program of your employer you used for improvements you added to the basis of your home.
- Energy conservation subsidy excluded from your gross income because you received it (directly or indirectly) from a public utility after 1992 to buy or install any energy conservation measure. An energy conservation measure is an installation or modification primarily designed either to reduce consumption of electricity or natural gas or to improve the management of energy demand for a
home.
- District of Columbia first-time homebuyer credit (allowed on the purchase of a principal residence in the District of Columbia beginning on August 5, 1997 and before January 1,
2012).
- General sales taxes (allowed beginning 2004 and ending before 2014) claimed as an itemized deduction on Schedule A (Form 1040) that were imposed on the purchase of personal property, such as a houseboat used as your home or a mobile
home.
You may be able to exclude from gross income a discharge of qualified principal residence indebtedness. This exclusion applies to discharges made after 2006 and before 2013. If you choose to exclude this income, you must reduce (but not below zero) the basis of the principal residence by the amount excluded from your gross
income.
File Form 982 with your tax return. See the form's instructions for detailed
information.
taxmap/pub17/p17-081.htm#en_us_publink1000265424Your principal residence is the home where you ordinarily live most of the time. You can have only one principal residence at any one time. See
Main Home, earlier.
This is debt you took out to buy, build, or substantially improve your principal residence. The debt must be secured by your principal residence, and it cannot be more than the cost of your principal residence plus improvements.
taxmap/pub17/p17-081.htm#en_us_publink1000265427The exclusion applies only to debt discharged after 2006 and before 2013. The maximum amount you can treat as qualified principal residence indebtedness is $2 million ($1 million if married filing separately). You cannot exclude from gross income discharge of qualified principal residence indebtedness if the discharge was for services performed for the lender or on account of any other factor not directly related to a decline in the value of your residence or to your financial
condition.
 | Recordkeeping.
You should keep records to prove your home's adjusted basis. Ordinarily, you
must keep records for 3 years after the due date for filing your return for the
tax year in which you sold your home. But if you sold a home before May 7, 1997,
and postponed tax on any gain, the basis of that home affects the basis of the
new home you bought. Keep records proving the basis of both homes as long as
they are needed for tax purposes.
|
The records you should keep include:
- Proof of the home's purchase price and purchase expenses,
- Receipts and other records for all improvements, additions, and other items that affect the home's adjusted
basis,
- Any worksheets or other computations you used to figure the adjusted basis of the home you sold, the gain or loss on the sale, the exclusion, and the taxable
gain,
- Any Form 982 you filed to report any discharge of qualified principal residence
indebtedness,
- Any Form 2119, Sale of Your Home, you filed to postpone gain from the sale of a previous home before May 7, 1997,
and
- Any worksheets you used to prepare Form 2119, such as the Adjusted Basis of Home Sold Worksheet or the Capital Improvements Worksheet from the Form 2119 instructions, or other source of
computations.
Previous Page |
Table of Contents |
Index |
Next Page
