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jimob2
Level 1

IRS Tax owed for 2021 on home sales?

I sold our home in Florida in May 2021for $235K, bought it at $180K Oct. 25, 2019.

 How do I figure out how much capital gains tax I will owe in my 2021 Tax filings?

1 Best answer

Accepted Solutions
dclick
Employee Tax Expert

IRS Tax owed for 2021 on home sales?

Thank you for reaching out with this excellent question!

Your tax liability will be based on your gain, determined by the amount you sold the home for, minus any fees and expenses related to the sale, minus your basis in the home (what you originally paid for the home and any improvements).

When you make a home improvement, such as installing central air conditioning or replacing the roof, you can't deduct the cost in the year you spend the money. But, if you keep track of those expenses, they may help you reduce your taxes in the year you sell your house.


This article addresses all these items and is a good reference to keep around:
https://turbotax.intuit.com/tax-tips/home-ownership/home-improvements-and-your-taxes/L6IwHGrx6 

After that, depending on your circumstances, you may be able to exclude $250,000 to $500,000 of any potential gain from income tax.

Do I have to pay taxes on the profit I made selling my home?

It depends on how long you owned and lived in the home before the sale and how much profit you made.

  • If you owned and lived in the place for two of the five years before the sale, then up to $250,000 of profit is tax-free.
  • If you are married and file a joint return, the tax-free amount doubles to $500,000.

The law lets you "exclude" this profit from your taxable income. (If you sold for a loss, though, you can't take a deduction for that loss.)

  • You can use this exclusion every time you sell a primary residence, as long as you owned and lived in it for two of the five years leading up to the sale, and haven't claimed the exclusion on another home in the last two years.
  • If your profit exceeds the $250,000 or $500,000 limit, the excess is reported as a capital gain on Schedule D.

 

How do I qualify for this tax break?

There are three tests you must meet in order to treat the gain from the sale of your main home as tax-free:

  • Ownership: You must have owned the home for at least two years (730 days or 24 full months) during the five years prior to the date of your sale. It doesn't have to be continuous, nor does it have to be the two years immediately preceding the sale. If you lived in a house for a decade as your primary residence, then rented it out for two years prior to the sale, for example, you would still qualify under this test.
  • Use: You must have used the home you are selling as your principal residence for at least two of the five years prior to the date of sale.
  • Timing: You have not excluded the gain on the sale of another home within two years prior to this sale.

If you're married and want to use the $500,000 exclusion:

  • You must file a joint return.
  • At least one spouse must meet the ownership requirement (owned the home for at least two years during the five years prior to the sale date).
  • Both you and your spouse must have lived in the house for two of the five years leading up to the sale.
This is covered in more depth here.

I hope this helps!

-Dennis
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

View solution in original post

5 Replies
DoninGA
Level 15

IRS Tax owed for 2021 on home sales?

If you sold your primary personal residence and you lived in and owned the home for at least two years in the five year period on the date of sale, you do not have to report the sale if your gains are less then the exclusion amounts of $250,000 if filing Single or $500,000 if filing Married Filing Jointly (and both lived in the home for two years).

If you had a gain greater then the exclusion amounts then you would have to report the sale. Also, if you received a Form 1099-S for the sale either with a gain or a loss, the sale has to be reported.

 

Gain on the sale equals the Selling Price minus selling expenses minus the Adjusted Basis of the home (Purchase price plus the cost of improvement prior to the home being sold)

jimob2
Level 1

IRS Tax owed for 2021 on home sales?

add on to my question regarding IRS Tax owed for 2021 on home sales.

 I relocated from Florida to Washington State for a new job and am currently renting an apartment. 

dclick
Employee Tax Expert

IRS Tax owed for 2021 on home sales?

Thank you for reaching out with this excellent question!

Your tax liability will be based on your gain, determined by the amount you sold the home for, minus any fees and expenses related to the sale, minus your basis in the home (what you originally paid for the home and any improvements).

When you make a home improvement, such as installing central air conditioning or replacing the roof, you can't deduct the cost in the year you spend the money. But, if you keep track of those expenses, they may help you reduce your taxes in the year you sell your house.


This article addresses all these items and is a good reference to keep around:
https://turbotax.intuit.com/tax-tips/home-ownership/home-improvements-and-your-taxes/L6IwHGrx6 

After that, depending on your circumstances, you may be able to exclude $250,000 to $500,000 of any potential gain from income tax.

Do I have to pay taxes on the profit I made selling my home?

It depends on how long you owned and lived in the home before the sale and how much profit you made.

  • If you owned and lived in the place for two of the five years before the sale, then up to $250,000 of profit is tax-free.
  • If you are married and file a joint return, the tax-free amount doubles to $500,000.

The law lets you "exclude" this profit from your taxable income. (If you sold for a loss, though, you can't take a deduction for that loss.)

  • You can use this exclusion every time you sell a primary residence, as long as you owned and lived in it for two of the five years leading up to the sale, and haven't claimed the exclusion on another home in the last two years.
  • If your profit exceeds the $250,000 or $500,000 limit, the excess is reported as a capital gain on Schedule D.

 

How do I qualify for this tax break?

There are three tests you must meet in order to treat the gain from the sale of your main home as tax-free:

  • Ownership: You must have owned the home for at least two years (730 days or 24 full months) during the five years prior to the date of your sale. It doesn't have to be continuous, nor does it have to be the two years immediately preceding the sale. If you lived in a house for a decade as your primary residence, then rented it out for two years prior to the sale, for example, you would still qualify under this test.
  • Use: You must have used the home you are selling as your principal residence for at least two of the five years prior to the date of sale.
  • Timing: You have not excluded the gain on the sale of another home within two years prior to this sale.

If you're married and want to use the $500,000 exclusion:

  • You must file a joint return.
  • At least one spouse must meet the ownership requirement (owned the home for at least two years during the five years prior to the sale date).
  • Both you and your spouse must have lived in the house for two of the five years leading up to the sale.
This is covered in more depth here.

I hope this helps!

-Dennis
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
DoninGA
Level 15

IRS Tax owed for 2021 on home sales?


@jimob2 wrote:

add on to my question regarding IRS Tax owed for 2021 on home sales.

 I relocated from Florida to Washington State for a new job and am currently renting an apartment. 


Assuming the gain on the sale of the home is $55,000 and you lived in and owned the home for at least two years in the five year period on the date of sale, you do not have to report the sale on a federal tax return.

 

The states of Florida and Washington do not have a personal income tax so there are no state tax returns for those states.

Mike9241
Level 15

IRS Tax owed for 2021 on home sales?

since you did not own and occupy the home for 2 out of 5 years ending on the date of sale, you do not get the full exclusion.  however, it seems that the principal reason for the sale is a change in place of employment. in such a case the IRS allows a partial exclusion the fraction of which is the number of months owned and occupied out of 24 or the same formula using the number of days owned and occupied out of 730. thus based on the dates you provide you should e entitled to about 80%+/- of the full exclusion. for a single taxpayer, this would be about $200,000 so none of your gain should be taxable. 

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