Sale of home

[Sharon73]

I am a 73 year old widow. If I sale my home and realize say $500,000 gain but don’t purchase another home, how do I report this?  How much income can I exclude and what type of income is the balance?

[PerpetuaSG]

You won't pay taxes on the first $250,000 (also known as a gain) you make from the sale of your home based on your filing status.   For those taxpayers who are married and file jointly with their spouse, they won't pay taxes on the first $500,000.

That income is free and clear as long as:

• You owned the home
• It was your main home for two years or more within the five years leading up to the sale
• You waited at least two years between selling your primary home and excluding your first $250,000 or $500,000 from taxes. In other words, you may buy and sell as many primary homes as you'd like, but you'll only get this tax benefit every two years.

Any gain over the exclusion of $250,000 for single (and $500,000 for married filing joint) is considered as long-term capital gain.  Long-term capital gains come from assets held for over a year. Short-term capital gains come from assets held for under a year. Based on filing status and taxable income, long-term capital gains for tax year 2022 (the same rate as in 2021) will be taxed at 0%, 15% and 20%. Short-term gains are taxed as ordinary income.  

So, assuming that you held your home for over two years and sold it having a gain of $500,000, based on your filing status (single), $250,000 will be excluded and the remaining $250,000 will be taxed at 15%.