You’re probably aware that when you sell your home, you may exclude up to $250,000 of your gain from tax if you’re unmarried (or married, filing separately) and $500,000 if you are married and file jointly. The home sale exclusion is one of the great tax benefits of home ownership. Many home sellers owe no tax at all when they sell their homes. Many home sellers owe no tax at all when they sell their homes.
Qualifying for the Exclusion
To claim the whole exclusion, you must have owned and lived in your home as your principal residence for an aggregate of at least 2 of the 5 years before the sale. You can claim the exclusion once every 2 years.
Do You Need to Report the Sale?
If a home sale is tax-free due to the exclusion, do you need to report the sale to the IRS on your tax return? It depends.
Your home sale may have already been reported to the IRS by your real estate agent, closing company, mortgage lender, or attorney. The IRS has a special information return for this purpose: Form 1099-S, Proceeds from Real Estate Transactions. This form lists:
- The gross proceeds from the sale
- The property address
- The closing date
When Form 1099-S Is Issued
Typically, the 1099-S is issued at the home sale closing and is included in the closing documents you receive at settlement. If you received a Form 1099-S, you must report the sale on your tax return. Even if your entire gain is tax-free due to the $250,000/$500,000 exclusion. Failing to report it can lead the IRS to assume that the selling price is a taxable gain (and that’s a mess).
Form 1099-S does not need to be filed if your home sold for less than the applicable $250,000/$500,000 exclusion and you signed a certification stating that you qualified for the exclusion. This certification is usually completed at the closing.
Reporting a Home Sale Without Form 1099-S
If Form 1099-S was not issued, the IRS does not require you to report the sale on your return. However, reporting it anyway can be a good idea. Doing so may prevent the IRS from asserting that the 6-year statute of limitations on audits should apply because you omitted more than 25 percent of gross income from your return.
How to Report a Principal Residence Sale
Reporting the sale of a principal residence is straightforward. File IRS Form 8949, Sales and Other Dispositions of Capital Assets, with your annual return. Enter your zero gain on IRS Schedule D.
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