What Federal Tax Form Do I Use If I Sold My House?

What Federal Tax Form Do I Use If I Sold My House?
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Selling your home gives you an opportunity to realize financial gain from your efforts to maintain and grow your home investment. Depending on how much your home has appreciated or how many capital improvements you've made, you may stand to profit significantly. In the view of the Internal Revenue Service (IRS), these capital gains on a home sale are reportable and taxable under certain circumstances. Finding the right forms to report your home sale and any gains, and understanding when this is necessary will help you determine if you owe the IRS money at tax time.

IRS Form for Sale of Home

To report the sale of your home and any capital gains to the IRS, include Schedule D with your 1040 tax return and Form 8949. Use Schedule D to report any gains or a loss from the sale. Use Form 8949 to report the date you purchased and sold the home, the original cost, the adjusted cost basis when you sold it, and the amount of the sale. In certain situations, the IRS may not require you to report the sale if you're eligible to exclude the gains from taxes.

If you've had the property for at least a year, you'll pay capital gains tax on the house sale using the long term capital gains rate. Otherwise, you'll pay short term capital gains tax at your ordinary income tax rate, which is often higher. If the home hasn't appreciated, you can take a long or short term capital loss.

If you've lived in the home in two of the five years preceding its sale, you can exclude up to ​$250,000​ in gains as a single person, or up to ​$500,000​ if you're married and file your taxes jointly with your spouse. These are known as the ownership test and use test. To calculate any gains on the sale, you'll have to first determine your initial and adjusted cost basis of the house. Once you know the adjusted cost basis, subtract it from the sale price of the house to determine any gains.

When to Report Gains

There are some cases in which the IRS requires you to report gains on the sale of your home: If you don't meet the occupancy test or you received a 1099-S or cannot exclude all of your capital gain income, you must report any gains on Schedule D and Form 8949. Additionally, if you've sold a primary home in the last two years and used the gain exclusion, you are generally not eligible to take it on a second property within that period.

If you sell a second home that is not your primary residence, you must report the sale to the IRS. However, there there are ways to reinvest the proceeds from the sale of a second home that can help avoid capital gains taxes.

Exceptions to Gain Exclusion Rules

In certain situations, you may still be able to exclude a reduced amount of gains even if you don't meet the occupancy rule or sold another primary home in the last two years and excluded gains. If you sold your home because of an illness, a divorce, or a major unforeseen circumstance, the IRS may allow you to exclude a portion of your gains.

If you spent a portion of the five-year ownership test period outside the U.S. as a Peace Corps volunteer, or on official duty as a member of the military, a member of the foreign service, or an employee of the intelligence community, the IRS will allow you to suspend that period when you sell your home and exclude gains under the occupancy exclusion rules.

2020 Capital Gains Rates

According to Forbes, for 2020, most single individuals with incomes between ​$40,000​ to ​$441,500​ will fall within the ​15​ percent capital gains tax bracket. Single individuals earning less than ​$40,000​ will be taxed at zero percent.

Married couples with income below ​$80,000​ will enjoy ​zero​ percent rates. Married couples with income above that up to ​$496,600​ will also fall into the ​15​ percent tax bracket. Both married and single individuals may be taxed at ​20​ percent capital gains if their income is higher.