Is the sale of my home taxable?

Picture of man standing in front of a house, placing a Sold sign on top of a For Sale sign.

The answer to “Is the sale of my home taxable?” is complex. One of the most popular provisions in the tax code is the capital gain exclusion of up to $250,000 ($500,000 for married couples) on the profit from selling your home. If you correctly follow the rules for this exclusion, the sale of your home can be non-taxable. You’ll find more information on the rules here.

However, the high exclusion amount has led many homeowners to overlook the true cost of their home, which can be a costly mistake. Proper record retention is crucial to support the tax benefit of this exclusion and avoid potential tax surprises in the future.

To calculate your home sale gain, subtract your basis (original cost of the home plus improvements) from the sales price. It’s essential to retain documents supporting the true cost of your home, including closing documents, invoices from improvements, and documents from the original purchase and sale.

Finally, when asking “Is the sale of my home taxable?” Here are some overlooked factors that can lead to tax surprises:

  1. Home office deductions: Depreciating part of your home for business use can affect the capital gain exclusion calculation.
  2. Length of homeownership: Homes tend to appreciate over time, so long-term homeowners may face significant gains upon selling.
  3. Location: Property values in major metropolitan areas often rise rapidly.
  4. Rental of home: Depreciation and rental income can affect the gain exclusion and residency requirement calculations.
  5. Previous home sales: The exclusion can only be used once every two years, so recent home sales can impact eligibility.
  6. Selling too early: Selling a home in less than two years can disqualify you from using the capital gain exclusion, resulting in owing taxes on the entire profit.

To avoid unpleasant tax surprises, it’s essential to review the rules of the capital gain exclusion before renting or selling your home and stay informed about any rule changes.

author avatar
Gwen Harrison President

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