NEWS & RESOURCES

Authored by: Efron Alvarado, CPA Tax Manager

Moving Soon? What You Need to Know About the Tax Implications of Selling Your Home

If you’re considering a home sale, you might be eligible to exclude all or part of any gain from the sale from your income when filing your tax return. However, understanding the rules can help you maximize your benefits and avoid surprises come tax season. Here’s what to consider:

1. Ownership and Use: Meeting the Tests

To qualify for the home sale exclusion, you must satisfy ownership and use tests. Specifically:

• Ownership Test: You must have owned the home for at least two years during the previous five-year period ending on the sale date.
• Use Test: You must have lived in the home as your main residence for at least two of those five years.

These years don’t have to be consecutive, making the tests more flexible for those with varied living arrangements.

2. Capital Gains: How Much Can You Exclude?

If you sell your main home at a profit, you may be able to exclude some or all of the capital gain from your taxable income. The exclusions are:

• Up to $250,000 for individual taxpayers.
• Up to $500,000 for married couples filing jointly.

If the entire gain is excluded, you don’t need to report the sale on your tax return—unless you receive a Form 1099-S, which documents proceeds from real estate transactions.

3. Losses: Not Tax Deductible

Unfortunately, if your home sells for less than what you paid for it, this loss is not deductible on your tax return. While disappointing, it’s important to plan ahead for this financial impact.

4. Multiple Homes: Rules for Non-Main Residences

If you own multiple properties, the exclusion only applies to your main home—the residence where you live most of the time. Gains from selling other properties, such as vacation homes or rental properties, are taxable and must be reported on your return.

5. Reporting the Sale

If you don’t qualify for the full exclusion or choose not to claim it, you’ll need to report the taxable gain when filing your return. Additionally, if you receive Form 1099-S, the sale must be reported, even if no taxable gain exists.

6. Mortgage Debt and Cancellations

If part of your mortgage debt was forgiven or canceled—for example, through a mortgage workout or foreclosure—it’s usually considered taxable income. However, there’s a special provision for forgiven debt related to a qualified principal residence:

• You may exclude discharged mortgage debt if the forgiveness occurred before January 1, 2026, or if a written agreement for forgiveness was in place before this date.

Selling a home is a major financial transaction, and the tax implications can be significant. To ensure you take full advantage of available exclusions and handle reporting correctly:

• Keep detailed records of your home purchase, improvements, and sale.
• Consult a tax professional to navigate any complexities specific to your situation.
• Plan ahead to avoid surprises when filing your tax return.

By understanding these rules, you can approach your home sale with confidence and peace of mind. If you’re planning to sell your home and have questions about the tax impact, contact us at cnccpa.com or call (509) 663-1661. We’re here to provide you with a complete financial team in your corner.