The journey from listing your home for sale to putting up the ‘Sold’ sign can be exhilarating. But what comes next? When you sell your home, you might have a significant financial gain, and understanding the tax implications is crucial. If you’re single or married filing separately, you can exclude up to $250,000 of the gain from your taxes, and if you’re married filing jointly, up to $500,000.
Who Needs to Report the Sale?
Reporting requirements hinge on whether a Form 1099-S is issued, typically done by your real estate agency or closing company. This form, which you receive at closing, details the gross proceeds and other vital sale data. If the sale price exceeds the $250,000 or $500,000 exclusion cap, the IRS mandates reporting through Form 1099-S.
Exclusion Qualifications
To claim the full exclusion, you need to have owned and used the property as your primary residence for at least two of the five years preceding the sale. Moreover, this lucrative exclusion is claimable once every two years.
When Reporting Isn’t Required
If you didn’t receive a Form 1099-S and your gain is fully covered by the exclusion, you’re generally off the hook for reporting. However, consider the benefits of reporting regardless: it may safeguard against future IRS audits by clarifying your income records and starting the statute of limitations clock.
The Perks of Reporting
Even if you qualify for the exclusion, reporting your sale can protect you from audit complications. The IRS usually has three years to audit a return, but this extends to six years if more than 25% of your income was omitted.
For Those Who Choose Not to Claim the Exclusion
You might opt not to claim the exclusion if you plan to sell another primary residence within two years and expect a larger gain. This strategy allows you to potentially apply the exclusion to the more substantial gain. However, if plans change, you have a three-year window to amend your return and claim the exclusion retrospectively.
You must file the proper form on your tax return.