IRS Provides Some Useful Tax Tips for Home Sellers

June 2, 2022

With rising prices, huge demand, and limited inventory, it is a historically good time to sell your home.

In their latest “Tax Tip” (2022-78), the IRS provides some important tax reminders for people selling a home. Here are some things that homeowners should think about when selling a home according to the May 19, 2022, IRS Tax Tip:

Ownership and use
To claim the exclusion, the taxpayer must meet ownership and use tests. During a five-year period ending on the date of the sale, the homeowner must have owned the home and lived in it as their main home for at least two years.

Taxpayers who sell their main home and have a gain from the sale may be able to exclude up to $250,000 of that gain from their income. Taxpayers who file a joint return with their spouse may be able to exclude up to $500,000. Homeowners excluding all the gain do not need to report the sale on their tax return unless a Form 1099-S was issued.

Some taxpayers experience a loss when their main home sells for less than what they paid for it. This loss is not deductible.

Multiple homes
Taxpayers who own more than one home can only exclude the gain on the sale of their main home. They must pay taxes on the gain from selling any other home.

Reported sale
Taxpayers who don’t qualify to exclude all of the taxable gain from their income must report the gain from the sale of their home when they file their tax return. Anyone who chooses not to claim the exclusion must report the taxable gain on their tax return. Taxpayers who receive Form 1099-S, Proceeds from Real Estate Transactions, must report the sale on their tax return even if they have no taxable gain.

Mortgage debt
Generally, taxpayers must report forgiven or canceled debt as income on their tax return. This includes people who had a mortgage workout, foreclosure, or other canceled mortgage debt on their home. Taxpayers who had debt discharged, in whole or in part, on a qualified principal residence can’t exclude it from income unless it was discharged before January 1, 2026, or a written agreement for the debt forgiveness was in place before January 1, 2026.

Possible exceptions
There are exceptions to these rules for some individuals, including persons with a disability, certain members of the military, intelligence community, and Peace Corps workers.

Worksheets included in Publication 523, Selling Your Home, can help taxpayers figure the adjusted basis of the home sold, the gain or loss on the sale, and the excluded gain on the sale.

How AbitOs Can Help  

All of the above IRS tax tips make perfect sense. However, if you are considering selling your home, there may be even more ways that the tax and evaluation experts at AbitOs can maximize your gains and minimize your tax obligations on the sale of your home. 

Feel free to contact us; we would be happy to review your particular situation.

AbitOs specializes in the unique accounting needs of high net-worth individuals with international lifestyles, LATAM, Canadian, and other non-US entities doing business in the US, as well as US entities doing business in those countries and across the globe. Selling a home and understanding all of your tax obligations, especially if you are selling property as a non-US citizen, can be quite complex. If you would like to benefit from our expertise in these areas or if you have further questions on this Alert, do not hesitate to contact us.