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William Perez

Taxes When Selling a House

By May 18, 2007

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Generally, taxpayers can exclude up to $250,000 in capital gains when selling their primary residence. (The exclusion is $500,000 if you are married and filing a joint return.) But not everyone knows about this special tax treatment, which is known as the Section 121 exclusion.

Here's a typical scenario. Brian in Louisiana has owned and lived in his house for three years. He plans to sell the house for $150,000, and he bought the house for about $105,000. Brian asked, "What kind of taxes do I have to pay when selling? I know have to pay realtor fees, but what, if any, other taxes are applicable?"

There may be transfer, stamp, or property taxes to be paid when selling a house, and those taxes are listed in detail on the settlement statement prepared by the title company during escrow. However, there should be no federal income taxes. The tax code allows taxpayers to exclude up to $250,000 in capital gains ($500,000 if married), provided that the taxpayer has owned and lived in the property as their main home for two out of the past five years.

In Brian's case, his capital gain of approximately $45,000 would be completely tax-free since he has owned and lived in the house for three years.

Taxpayers who are selling their principal residence before meeting the two-out-of-five-year rule should consider determine if they qualify for a partial exclusion of their gains. The tax code allows taxpayers to exclude a portion of their gains if they are selling to relocate for work, for health concerns, for due to unforeseen circumstances. Taxpayers will also want to accurately calculate their capital gains to avoid paying more taxes than they need to.

More information: Selling Your Home | IRS Publication 523 | Code Section 121

Comments
January 6, 2008 at 11:32 pm
(1) Liz says:

Great information. I have a question, though. I’ve lived in my house for 3 years, and my hubby and I are moving out of state with no intention of buying a house again for another ~2 years. Does this change the tax rule as far as our income from the sale of our current home?

January 15, 2008 at 9:24 pm
(2) William says:

No, you can take the capital gains exclusion even if you don’t buy another house.

January 19, 2008 at 6:47 pm
(3) Judy says:

I bought my home 23 years ago, and married my husband 16 years ago. He and I have lived in it since then. The house has always been only in my name. Can we still make a profit of $500,000 or do I only get $250,000?

January 20, 2008 at 10:23 pm
(4) Mihai says:

I bought an apartment in my native country in 1981, after marriage. It was my main residence until I immigrated in 1995 in US. Then, I divorced in 2000 and sold the apartment in 2007 for E85,000 (approximately $112,000), half being my share. I transferred the whole amount of money in the US. We paid the sale tax, realtor tax and some fees in my native country. Do I have to pay taxes on this sale in the US and what taxes and fees can I subtract from my US income tax ? I didn’t have a job this year 2007, I received only unemployment approximately $8,500 and no W2 form.

Some people gave me a hint about filling out the schedule 2555 and form 1040. What is your opinion?

Thank you in advance for your kind answer.

February 19, 2008 at 9:04 am
(5) John Glenn says:

OK –
We own a house in City “A.” My wife and I lived in this house for about 10 years.

We relocated in January 2008 to City “B” where we rent a house. (Move caused by employment.)

The house in City “A” was rented out in February 2008.

I want to buy a house in City “C” while the market is weak (i.e. on/before June 2008).

Given the current market, I doubt my house in City “A” will sell before end of 2008.

QUESTION: With all the alphabet soup (A, B, C) will I be able to exclude any capital gains on House “A” when it finally sells if I already am in House “C” (or still in the House “B” rental)? Let us “assume” a sale date of June 2009.

January 18, 2009 at 8:00 pm
(6) Peggy says:

If you’ve done work on your house, like putting on a new roof, can you get tex brakes when you sell it?

January 20, 2009 at 8:35 pm
(7) taxes says:

Peggy, the cost of any major improvements and repairs is added to your cost basis in the house, which in turn will reduce your capital gains when you sell in the future.

January 20, 2009 at 8:40 pm
(8) taxes says:

Mihai, yes this transaction is reported on your US tax return as well, since US citizens and resident aliens are taxed on their worldwide income. The gain will be taxed as a long-term capital gain at the 15% tax rate since you owned the property for more than a year. If you lived in the property for at least 24 months in the 5-year period ending on the date of sale, then you could exclude the gain of up to $250,000. The taxes you paid to the other country would qualify you for a foreign tax credit on your US return.

Form 2555 won’t apply in this situation, because that form is used only for income earned from employment or self-employment while living abroad.

February 20, 2008 at 8:57 pm
(9) taxes says:

John, you will be able to exclude the gain on house A if you lived there at least 24 months in the five-year period ending on the date of sale. So assuming a sale date of June 2009, and you moved out on January 2008, you would still have 44 months of use (from June 2004 through January 2008), which is greater than the 24 months needed for the exclusion. Some of your gain will be taxable (based on the depreciation and also based on the non-primary use since January 2009).

February 10, 2010 at 3:21 pm
(10) Nick says:

I have lived in my home for 5 years, however the house was tied up in trust since my mother’s death in 1990. Just recently (2009) it was removed out of trust and deeded to me. Will I be eligible for the tax exemption if I were to sell in 2010 since essentially I have “owned” it for longer than 5 years and have lived there again as my primary residence for 5 years?

February 11, 2010 at 7:07 pm
(11) Kim says:

I’m totally confused. We are selling our home for less than we purchased it 3 years ago and less the money we put into it. What kind of taxes (other than property) are we responsible for when selling our house? I live in Philadelphia, PA and someone mentioned a City Tax and Federal/State tax?? Please help.

November 18, 2010 at 3:50 pm
(12) rebecca says:

What if siblings,, who owned the house of their father who is still alive? What type of taxes should we hold out? We usually receive a 3000 fed income tax return…

January 25, 2011 at 9:00 am
(13) Judy says:

I am living in Fla and have been for the last 5 years. I allowed my grandaughter to live in my house in Ky while she attended school. After she graduated she purchased the house from me in 2010. Do I have to pay income taxes on the sale of the house?

January 25, 2011 at 3:53 pm
(14) William Perez says:

Judy, the sale of a home is a taxable situation, but whether any taxes are due depends on the calculations. If you owned and lived in the house for at least 2 out of the last 5 years, you can exclude up to $250,000 of the profits. Please review the details in my article on Selling Your Home.

January 31, 2011 at 10:36 pm
(15) Matt says:

Question: I bought my house in 1999 for $180,000 and lived in it until July 2007. I rented it out ever since from 8/2007 and sold it on 9/2010 for $215,000. So it was rented for more than 3 years. Will I be able to exclude the gain on house or I have to pay capital gain tax? Thanks!

March 17, 2011 at 7:06 pm
(16) Charity says:

My father helped me buy a home by getting the mortgage in his name, with the plan that when I could get a mortgage, I would buy it from him. So it was NOT his primary residence, nor a rental property for him. I was paying the mortgage myself for the past 3 years.

Now, I am applying for a mortgage, which will be very small ($35,000 or less), showing him profiting $5,000 from the sale (though the extra money is actually not going to him, it’s to remodel the bathroom).

He was told by the loan officer that he’d have to pay several thousand dollars in capital gains tax. I can’t find any information on this particular situation, but several thousand dollars taxes on a $5,000 (on paper) profit seems incorrect. I hope you can advise me !

March 17, 2011 at 8:08 pm
(17) William Perez says:

Your father will report the sale and calculate his gain. His capital gain income for tax purposes will be $35,000 (his selling price) minus whatever he paid for the house. Since he bought the house 3 years ago, this will be a long-term gain taxed at 15%.

April 18, 2011 at 1:28 pm
(18) Kent says:

If I have lived in a triplex for 3 of the past five years, (lived in one uint and rented the other two) and sell this home do I have to pay capital gains tax? And if yes…can I purchase a home that same year using those proceeds and not pay capital gains tax???

June 15, 2011 at 9:26 pm
(19) Peggy says:

Moved out of my home 5 yrs ago while husband lived there. Divorced last yr. Selling our home. What kind of taxes will I be expected to pay on a $150,000 portion of the sale of the house in Oregon? If I have caretaken the residence intermittently, while paying on a rental? Any help would be greatly appreciated.

June 29, 2011 at 4:14 pm
(20) julie perez says:

i need to sell my summer place in new york state but i am canadien how does the tax works do i pay the gains taxes or does the buyer how does it work ????

July 18, 2011 at 10:41 am
(21) shawni says:

Hi i am selling a house that was willed to me 10 years ago i have never lived in it , The house is in CT but i live in Ny how much will i have to pay the IRS for taxes? sales tax? i am selling it for $100.000 thanks

August 21, 2011 at 12:23 pm
(22) Judy says:

I moved out of our home in 2009 and lived in it since 2003. What year do I have to sell my home until I receive capital gains on the sale of my principal house. It might be sold in 2011 hopefully. Will I have to pay any capital gains tax on the sale of my old residence?
Thanks, Judy

January 4, 2012 at 8:07 pm
(23) rocky says:

i plan on buying houses and selling them or renting them out right now i am trying to figure out what kind of taxes i am going to have to pay when i do this.

May 7, 2012 at 12:46 pm
(24) Kari Dunn says:

We owned our house for 16 years and then rented it out. How long do we have to keep it a rental before we sell it, and not have to pay capital gains tax? Thank you.

July 2, 2012 at 6:40 pm
(25) Steve says:

We have lived in previous home since 2003 and sold it in 2009. We took the proceeds
and bought another replacement home also in 2009. The escrow company used my
SS# and did an electronic deposit into our joint account. The proceeds were around $320K.
The replacement home was $215K and we put about $100K into it with home improvements.

Is there any capital gains tax owed? I just got a State Tax Lien for $52K and was unemployed
since 2007. I just got a new job in Sept 2011. We replacement home is 120 miles away from the previous home. We were forced into selling it, due to having a ARM that was going to double in cost for the following year.

Help! What forms do I use to cover both the sale and purchase of a replacement home?

July 2, 2012 at 7:35 pm
(26) William Perez says:

The sale of the home should be reported on your 2009 tax return. If that return was already filed, check to see if the sale of the home was reported on a Schedule D. If not, amend your 2009 return to add in the Schedule D with the details of the sale. If a 2009 return wasn’t file, then file your 2009 return and include a Schedule D to report the sale of the home.

July 23, 2012 at 7:13 pm
(27) ThatGirl says:

Okay we bought a hud home in 2009 and we owe about 6k property taxes that we have to pay before Dec or we are out…can we sale the property to a family member so that we can still live in the house but i am sure we will not sale it for that much because we will still live in the house….any answers?

August 30, 2012 at 10:21 pm
(28) Chris Wallace says:

Do you have to pay state taxes and SS/Medicare taxes when selling land/property????

September 11, 2012 at 3:12 pm
(29) Dennis says:

Do i have to pay capital gain on a house sold in state of geotgia for 20,000$. Will i have to pay any taxes or fees with this small of purchase?

September 19, 2012 at 3:48 am
(30) ira fern says:

very helpful but i like to know if three brothers are the owners of a house but only one brother lives there and he is marry when the house is sold does the brother who been living there with his wife for over 5yrs do they get the $500.000 TAX CREDIT?

October 1, 2012 at 3:59 pm
(31) Pam says:

I bought a home on Guam in 2002 and lived there until 2008 when I got divorced and had to take a job in Hawaii. This past Jan 2012 my new husband and I bought a home. I have a quitclaim deed revoking my ex-husband’s rights to the house on Guam as agreed in the divorce settlement and I’ve just been renting it out since I couldn’t afford even one month of a mortgage payment for it. I am thinking of selling the house on Guam as it is getting harder and harder for me to be a landlord from afar. There is only about 4 years left on the mortgage loan which is still of course under my ex-husband and I’s name. How much taxes will I have to pay? Will those taxes be paid on Guam or here in Hawaii?

October 13, 2012 at 12:47 pm
(32) Lois Headrick says:

what fed tax comes into play on Jan -1 -2013? I was told 3.8% would be assessed–should we sell in 2013-does the 5 year requirement still apply. we are retired seniors and soon will need to downsize–we have owned our home for 40 years. We would appreciate any info you have on this subject. thank you. Lois

December 16, 2012 at 4:36 pm
(33) Melissa says:

I have a question. I am selling my fathers home that was left to means the home is currently on the market and the taxes are due. Do I have to pay them or pay them when the house sells? Please advise I have no idea and really no money to,pay them.

January 11, 2013 at 4:03 pm
(34) Bill says:

My wife is selling a peice of property she owned for the last 10 yrs what taxes in Okla and federal must we pay purchase price 20 years ago was 20,000 sold for 27,500 before closing costs etc… we hope to see 22,000 back but need to know how to pay the taxes etc forms etc……

February 7, 2013 at 10:40 am
(35) Karon says:

I am Canadian and want to buy a house in Florida for the winter months. What are the tax implications when I sell?

March 2, 2013 at 5:08 pm
(36) Brian says:

I am selling my Father’s house and just got done with probate etc…He lived there for 40 years approx. Will i owe any taxes if i’m only getting $40,000??

March 12, 2013 at 2:03 am
(37) Jennifer says:

I also sold a decease parents home in 2012. I never lived in that house. What tax burden can I expect?

April 18, 2013 at 1:30 pm
(38) Eddy says:

I have lived with my mother for 15 years she passed away in 2009 but the house is still in her name, will I have to pay capital gains tax when I sell this house. It is only worth about $50,000.

April 19, 2013 at 4:08 pm
(39) Jon says:

I am about to list my home. I have lived in my house for almost 20 months. I am trying to figure out how much I will be taxed on the sale of my home. I know that since I have not lived in my house for 2 years, that I will owe 15% on the gain based on the tax bracket that I fall under.

Is this the only tax that I will have to pay, or is there any addition taxes, such as state (Virginia) or “flipping” a house tax (heard from a neighbor).

From my understand, we would only be taxed the 15%, is this true?

April 24, 2013 at 10:57 pm
(40) Eric says:

My wife’s mother and father are moving to a smaller house because they are getting older and want less house to care for. My wife has one brother and he is going to move in to the house my in-laws are leaving. Here is the kicker and question. They want to see my wife and her brother enjoy some of their inheritance while still alive. Okay, my brother-in-law is selling his old home. What my in-laws are trying to do is give 100k to my wife’s brother toward their former home and he would then have to pay my wife 100k to pay her part out. Are you confused because I am a little? I would like to know how this is going to happen on paper and if my wife and I will endure any tax burden? Brother-in-law has handled everything financially without my wife’s input. I am sure the in-laws former home will appraise for around 385K. Brother-in-law is selling his old home for
120K. Can anyone help me understand this? I may have left out some details that need to be explained but this is the scenario in a nut shell and I am a little skeptical and worried. I do not want to see any family problems arise out of this transaction. Can anyone help me get my head around this?
Thanks

May 16, 2013 at 9:36 pm
(41) Judy says:

We sold a house in OK. Was living with daughter in CA until we could buy a house in CA with money from sale. We got a letter saying it was reported we sold property in CA, so we owe taxes. Do we pay taxes to CA for property sold in OKLa??

July 30, 2013 at 7:21 pm
(42) G Jackson says:

Wife resident of Texas sold farm land in Dec 2012 for $500000 , she files joint return with husband. What can she expect to pay in taxes for this sale?

September 4, 2013 at 1:31 pm
(43) Adam says:

I bought a house almost 3 years and it was my main resident for 1.5 year and then I moved out and rent it out.
Right now if I want to sell my house, how to calulate the tax. For example, if I bought the house at 210000 and sell out it at 310000. How much money I need to pay for the CA tax.
Thank you advance for your help.

October 22, 2013 at 7:01 am
(44) wayne says:

we had credit problems and so our son had the mortgage in his name, deed in all three, 7 years ago. Now selling, how can he reduce his tax liability? He bought his primary residence about 2years ago so this house is second home. thanks wayne

December 1, 2013 at 12:17 pm
(45) William says:

I received a condo thru a quick claim transfer several years ago. I did not ever live in the condo, my mother did. Now she is moving and I want to sell the condo.
What would be my tax exposure?
thanks

December 20, 2013 at 7:52 pm
(46) Nicole says:

Need to sell our first home this spring (FHA loan) for move out of state. Will have owned less than 1 year. Is there not a tax exception rule that allows a third party to hold the profits from the sale so we may use them for the down payment on a new house? And that it must be completed in a certain time frame? 3-6 months? We are not moving for job change, hardship or family change. It’s our own choice entirely.

January 4, 2014 at 11:06 pm
(47) sam says:

I bought a house with my wife for $380000 I spent $300000 , I am selling it for $1500000 , how do we calculate the tax

January 7, 2014 at 2:19 am
(48) William Perez says:

Sam, to calculate the tax on the sale of a home, first you calculate your taxable gain on the property. Then you apply the capital gains tax rate that applies, which can vary based on your total taxable income for the year. This is discussed briefly in the article on Selling Your Home, and is discussed more in-depth by the IRS in Publication 523.

January 17, 2014 at 10:39 am
(49) sam says:

,,, if my taxable income for the year is $ 46000….what is the capital gains tax rate ?
Thanks

January 21, 2014 at 10:04 pm
(50) june kilpatrick says:

My brother, sister and I own my Mom’s home, which was signed over to us about 5 years ago. Now my brother is going to buy my sister and I out. He lives in the home. It is not my primary home. Do I have to pay taxes on the buy-out amount?

January 23, 2014 at 12:09 pm
(51) Sophie says:

I have a condo in California that I have been renting for the last 10 years. I am planning to sell it and pay off the house my husband and I live in and another summer home we have. What is the percentage on capital gain taxes if I don’t live there for the last 2 years? I will get around $400,000 after I pay off my mortgage.
Thank you in advance.

February 5, 2014 at 5:10 pm
(52) Shirl says:

I just sold my home in the Tacoma, WA for $186K! I paid all kinds of taxes including all closing cost in the amount of $4K. I paid a City/county tax/stamps in the amount of $3,315.80…is this a tax deduction? Also, paid for all the repairs, incljuding replacing siding which was 5K and all remaining utilitles…are these tax deductions as well? I brought another home 2 months after I sold the home in Tacoma…do I have to pay a capital gain tax?

February 10, 2014 at 10:01 pm
(53) Cassandra says:

I have lived in my house for 30 years. I bought it for $60,000 and it has increased in value so that it could sell potentially for $700,000. 10 years ago I married and am still married, but the house has always been in my name only, and my husband has always lived elsewhere. We have been filing joint tax returns for about 9 years now. Would I have to pay capital gains, and if so, how much?

February 11, 2014 at 5:27 pm
(54) Shirl says:

Sam, will you be answering my question I regarding capital gain? By the way, my home I sold in Tacoma, WA was a rental. Hope to hear from you soon!

February 12, 2014 at 4:05 pm
(55) Mary says:

Thank you for the information.
I read that a home, mobile home or even a camper can qualify.
HOW MUCH LAND can be included with the sale of a residence?

February 13, 2014 at 6:46 am
(56) larry king says:

If I own real estate in the US, living there for the maximum 6 months, and I sell the home at a profit, am I subject to taxes in the US and do I have to file a return. Thanks.

March 19, 2014 at 8:06 am
(57) JR Vazquez says:

Lots of copy errors.

April 7, 2014 at 4:30 pm
(58) Scott Oliver says:

we have two houses and the one we are selling is our rent house. we stand to make around 45,000 and wanted to use this as a down on a new house and then sell the house we live in.
My question is Tax wise is their a way to do this with out getting hit paying a bunch of taxes applying the money from a rent house to a new house? Thanks

April 7, 2014 at 9:40 pm
(59) pamela says:

I lived in NY for 5 months and CA for 7 in 2013. I sold my NY home while living in CA. Do I report all the capital gains on the NY tax return of split them based on where I was living at the time?

April 14, 2014 at 9:49 am
(60) barry says:

bought a house around 10 yrs ago for $41500.00 sold it for 38000.00 after paid mortgage off left me around 17000.00 do I have to pay gains on that

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