Hi @taxreturnidiot!
The purchase of your new home is irrelevant to whether the sale of your old home is taxable.
What does matter is 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.
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.
Generally, if you qualify for the exclusion, you do not even need to report the sale on your tax return. If you receive a form 1099-S, you will need to report the sale.
You will need TurboTax Premier (or above) to report the sale.
- Click on Federal Taxes
- Click on Wages and Income
- Scroll down to Less Common Income
- On Sale of Home (gain or loss), click the start or update button
Or enter sale of home in the Search box located in the upper right of the program screen. Click on Jump to sale of home.
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