Publication 523, Selling Your Home, is an IRS booklet where you can find complete requirements and limitations you could face if you want to sell your primary residence. If you sell your primary residence, you may be able to exclude up to $250,000 of the gain from your income. This is called the principal residence exclusion. You can claim it if you meet certain ownership and use tests and if you file a joint return with your spouse. However, you must live in the home as your primary residence for at least two years before you can claim this exclusion.
Worksheets included Publication 523 can help you figure out your adjusted basis, gain or loss on the sale, and excluded gain. If you have limited English proficiency (LEP), you can request a change in language preference so that the IRS will provide written communications in your preferred language.
Does the IRS Know If You Own a House?
A house is a big deal for many homeowners. The purchase of a new home is often the most expensive item in a household budget, so it’s not surprising that savvy consumers take advantage of any tax breaks and incentives they can get their hands on to make the transaction go as smoothly as possible. One of the more intriguing aspects of home ownership is the IRS’s role in facilitating the process. Aside from approving mortgages, the agency also provides information to help people navigate their tax obligations and ensure they pay what they owe.
The IRS may not be in your face every time you make a real estate-related transaction, but they still have an interest in your well-being and are always on the lookout for opportunities to make your life easier. For example, you’ll find a number of programs to help you defray the cost of your home mortgage by lowering your interest rate and reducing the number of your monthly payments.
How Do I Prove My Primary Residence to the IRS?
The IRS uses a few factors to determine your primary residence. These include where you live, the length of time you spend there, and your voting and vehicle registration records. A primary residence may be a single-family home, condo, townhome, or any other property you occupy for the majority of the year. It’s also possible to claim an apartment, boat, or mobile home as your primary residence as long as there is a living space and a bathroom.
Understanding how the IRS defines a primary residence is important because this can affect your tax situation. The right classification can help you lower your mortgage rates, take advantage of tax breaks and potentially exclude gains from a home sale from your taxable income. The IRS wants to make sure you don’t lie about your primary residence, so it has created many rules that must be followed when claiming a house as your primary residence. You could face fines or even jail time if you bend these rules.
Do I Have to Report the Sale of the Home to IRS?
If you plan to sell your home this year, it’s important to know whether you must report it to the IRS. It’s also a good idea to understand your options for reducing the gain on the sale, such as taking advantage of a capital gains tax exclusion or excluding certain expenses you’ve incurred to improve your property. Fortunately, most people who sell their main home will be eligible to exclude up to $250,000 of profit (or $500,000 if you’re married). If you meet the requirements to qualify for this exclusion and are not required to make estimated payments, you should avoid paying any taxes on the gain.
Another way to reduce your gain on a home sale is to keep track of the cost basis you paid for it. This includes the cost of buying the home, the interest you paid on a mortgage, and any capital improvements you’ve made to it. You should keep these records until 3 years after the date of your home sale when they’ll be needed for your tax return. The IRS provides a detailed list of items you can exclude from your basis in Publication 523, Selling Your Home.