The short answer
Often, no — or not all of it. Tax on a home sale is based on your gain, not the selling price. And if the house was your main home and you meet the ownership and use tests, you can generally exclude up to $250,000 of gain, or up to $500,000 on many married-filing-jointly returns. Gain above the exclusion, or gain that does not qualify, is taxable.
This guide covers an ordinary U.S. main home. For a home or apartment abroad, see I sold property overseas.
Step 1: figure your gain
Your gain is generally the amount realized from the sale (the selling price minus selling costs) minus your adjusted basis. Adjusted basis generally starts with what you paid for the home and is increased by certain costs, such as improvements, and decreased by certain items, such as depreciation if you ever rented the home or used it for business. Publication 523 has the worksheets.
| Illustrative figures | Amount |
|---|---|
| Selling price | $700,000 |
| Minus selling costs (illustrative) | − $40,000 |
| Amount realized | $660,000 |
| Minus adjusted basis (purchase price plus improvements) | − $420,000 |
| Gain | $240,000 |
Step 2: check the main-home exclusion
You can generally exclude gain from the sale of your main home if, during the 5-year period ending on the date of sale:
- Ownership test: you owned the home for at least 2 years, and
- Use test: you lived in it as your main home for at least 2 years.
You generally cannot use the exclusion if you excluded gain from the sale of another home during the 2 years before this sale.
| Situation | Maximum exclusion (if all tests are met) |
|---|---|
| Eligible individual | Up to $250,000 of gain |
| Many eligible married couples filing jointly | Up to $500,000 of gain |
| Tests not fully met | A partial exclusion may be available in certain qualifying circumstances |
If you do not meet the full 2-year tests, you may still qualify for a partial exclusion in certain circumstances described in Publication 523. Check those rules before assuming the whole gain is taxable.
Losses are not deductible
If you sell your personal main home for less than your adjusted basis, the loss generally is not deductible.
Form 1099-S and reporting
The closing agent may send you Form 1099-S. If you receive one, you may need to report the sale on your return even when the entire gain is excludable. If part of the gain is taxable, it is reported on your return. Keep your closing statements and records of improvements to support your basis.
When the home was also a rental or business
Prior rental or business use can change the calculation materially. In particular, depreciation allowed or allowable for business or rental use after May 6, 1997 generally cannot simply be sheltered by the home-sale exclusion. Periods when the home was not used as your main home can also affect how much gain qualifies. These calculations are beyond this guide — have the sale reviewed. For how rental depreciation works, see Renting out a house or apartment. The home-sale exclusion and the rental depreciation rules can apply to the same sale: gain due to that depreciation is generally taxable even when the rest of the gain is excluded, and how it is taxed is explained in Selling a rental property.
Example
Using the illustrative figures above, May and her spouse owned and lived in their home for six years and file jointly. Their gain is $240,000. They meet the ownership and use tests and have not excluded gain on another home in the past 2 years, so their gain is within the exclusion. If they received Form 1099-S, they check Publication 523 to see whether they still need to report the sale.