Seller Information

Seller's FAQ's on Tax Matters

Check with your tax consultant on the factors that may affect taxes resulting from the sale of your principal residence. For example: 

  • Whether you purchased the home or acquired it by gift, inheritance, or like-kind exchange
  • Whether you used your home partly for business or rental
  • Costs associated with selling your home
  • Home improvements or additions, which may help to offset capital gains
  • Gain from the sale of a prior home on which tax was postponed prior to the enactment of the federal Taxpayer Relief Act of 1997

The federal Taxpayer Relief Act of 1997 says when you sell your home you can keep, tax free, capital gains of up to $500,000 if you are married filing jointly or $250,000 for single taxpayers, or married taxpayers who file separately. To qualify for the exclusion, you must have used the home as your principle residence for at least two of the prior five years (in the case of married taxpayers, each spouse must meet two of the five year requirement). It is not a one time tax exclusion. You can use the exclusion as often as you meet the qualifications. 

For home sales after December 31, 2008 the exclusion from capital gain will not apply to periods of nonqualfied use.   For example, a single taxpayer buys a home on January 1, 2009 for $400,000, and uses it as a rental property (ignoring depreciation rules) for two years.  Then on January 1, 2011 he converts the property into his principal residence.  Then two years later, on January 1, 2013, he sells the property for $700,000.  Of the $300,000, a gain of 50% (two years divided by four) is allocated to nonqualified (rental) use and is not eligible for the exclusion, and thus is taxed.  The remaining gain of $150,000 (from the time being a principal residence) qualifies and is excluded from tax, as it is less than $250,000.

The Federal Internal Revenue Service Restructuring and Reform Act of 1998 further clarified the law and says you can prorate the $500,000/$250,000 exclusion (not your specific gain) if unforeseen events, such as a job change, illness, or some other hardship forced you to sell before you meet the two-year residency requirement.  

Many, but not all federal tax benefits are also available from state tax departments. Be sure to discuss your move with a tax professional familiar with state tax rules, especially if you are moving from one state to another. 

Are seller-paid points deductible?

As of Jan. 1, 1991, homeowners have been able to deduct points paid by the seller. This deduction previously was reserved only for points actually paid by the buyer.

Can I deduct the loss I suffered when I sold my home?

The Internal Revenue Service currently does not allow deductions for losses on the sale of your own home. 

Where do I get information on IRS publications?

The Internal Revenue Service publishes a number of real estate publications. They are listed by number:

521 "Moving Expenses"

523 "Selling Your Home"

527 "Residential Rental Property"

534 "Depreciation"

541 "Tax Information on Partnerships"

551 "Basis of Assets"

555 "Federal Tax Information on Community Property"

561 "Determining the Value of Donated Property"

590 "Individual Retirement Arrangements"

908 "Bankruptcy and Other Debt Cancellation"

936 "Home Mortgage Interest Deduction"

Order by calling 1-800-TAX-FORM. To call the Internal Revenue Service about general questions, call (800) TAX-1040.