If you sell your main home, you may be able to exclude up to $250,000 of the gain on the sale ($500,000 if you are married filing jointly). Any gain that is more than those amounts would be taxable and would be reported on Schedule D, Capital Gains and Losses. However, if you lose money on the sale of your home, the loss is not deductible. Review the rules to see if you qualify and how to calculate your gain or loss.
First of all, this tax exclusion applies only to your main home. If you have more than one home, your main home is generally the one in which you live most of the time. Your main home for these purposes can be a house, condomium, cooperative apartment, mobile home, or houseboat. If you own a home, but you live in a different home that you rent, your rented home is considered your main home, and the sale of the home you own would not qualify for the exclusion.
For purposes of determining whether you can exclude the gain on your home, you must first figure the amount of your gain or loss. This is calculated as follows:
Minus selling expenses
Equals amount realized on the sale
Minus adjusted basis in the home
Equals gain or loss on the sale
The following is a brief description of how the selling price is defined, which selling expenses are taken into consideration in determining the amount realized, and some considerations to be taken into account in determining the adjusted basis of the home.
Amount you realized on the sale
To determine whether you had a gain or loss on the sale of your home for tax purposes, you start with the selling price. The selling price includes the money you receive, the fair market value of any property or services you receive, and any mortgage or other debt assumed by the buyer. If you received Form 1099-S, Proceeds From Real Estate Transactions, the total amount you received should be shown as gross proceeds in box 2. But this does not include the fair market value of any other property you received.
The selling price should not include any amounts you receive for personal property, such as furniture, that you sell with the home. And, if you sell your home as a result of a job transfer and your employer reimburses you for any loss on the sale of your home, or for selling expenses, the amount you receive from your employer is reported as part of your employee compensation and does not affect the selling price of your home.
Certain selling expenses are subtracted from the selling price to determine the amount realized on the sale. These selling expenses include commissions, advertising fees, legal fees, and loan placement fees or "points". The selling price minus the selling expenses equals the amount realized on the sale for tax purposes.