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Taxes & The Homeowner:
Rolling Over Capital Gains
If you sell your main home for a large profit, you may owe capital gains
taxes. However, you can exclude up to $250,000 in capital gains from your
taxable income, provided you meet the IRS' ownership and use tests.
If you're married and filing a joint return, you can exclude up to
$500,000 in capital gains from your income, provided:
Either you or your spouse meets the IRS' ownership test. Both of you meet
the IRS' use test. Neither of you have excluded the capital gains from the
sale of a home in the previous two years.
The amount of your capital gain is your amount realized minus your
adjusted basis. If your adjusted basis is larger than your amount
realized, you have a capital loss.
To calculate your adjusted basis, start with your basis. This is the cost
of buying or building your home, and includes closing costs and settlement
fees. Add any increases or decreases to basis to calculate your adjusted
basis.
IRS Pub. 523: "Selling Your Home" includes two worksheets. The first
worksheet helps you calculate your adjusted basis. The second worksheet
calculates the gain or sale on your home, and the amounts of any
exclusions or taxable gains.
If you have a taxable gain, you'll need to complete Schedule D of IRS Form
1040.
For additional information, see
IRS Pub.
551: "Basis of Assets."
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