Tax Consequences of Selling Your Home
If you sell your principal residence, you may exclude up to $250,000 ($500,000 for joint filers) of your capital gain from tax. Gain that qualifies for the exclusion also will be excluded from the net investment income tax.
You need to keep thorough records to support an accurate tax basis including your original cost information and subsequent improvements, reduced by casualty losses and any depreciation that you may have claimed based on business use.
Gain on the sale of a principal residence generally isn’t excluded from income if the gain is allocable to a period after 2008 of non-qualified use. Generally, non-qualified use means the property isn’t used as your principal residence. There’s an exception if your home is first used as a principal residence and then converted to non-qualified use.
Generally losses on the sale of your principal residence aren’t deductible. But if part of your home is rented or used exclusively for your business as a home office, the loss attributable to that portion will be deductible, subject to various limitations.
You should consider converting your second home to rental use before selling because a second home is not eligible for the gain exclusion. It can be considered a business asset and you may be able to defer tax on any gain through an installment sale or a Section 1031 exchange. Section 1031 exchange is known as a “like-kind” exchange which allows you to exchange one real estate investment property for another and defer paying taxes on any gain until you sell the exchanged property with restrictions and significant risks applied.
Or you may be able to deduct a loss but only to the extent of the amount declined in value after the conversion.
You need to keep thorough records to support an accurate tax basis including your original cost information and subsequent improvements, reduced by casualty losses and any depreciation that you may have claimed based on business use.
Gain on the sale of a principal residence generally isn’t excluded from income if the gain is allocable to a period after 2008 of non-qualified use. Generally, non-qualified use means the property isn’t used as your principal residence. There’s an exception if your home is first used as a principal residence and then converted to non-qualified use.
Generally losses on the sale of your principal residence aren’t deductible. But if part of your home is rented or used exclusively for your business as a home office, the loss attributable to that portion will be deductible, subject to various limitations.
You should consider converting your second home to rental use before selling because a second home is not eligible for the gain exclusion. It can be considered a business asset and you may be able to defer tax on any gain through an installment sale or a Section 1031 exchange. Section 1031 exchange is known as a “like-kind” exchange which allows you to exchange one real estate investment property for another and defer paying taxes on any gain until you sell the exchanged property with restrictions and significant risks applied.
Or you may be able to deduct a loss but only to the extent of the amount declined in value after the conversion.