Previous Page: Publication 17 - Your Federal Income Tax - Selling Your Home Next Page: Publication 17 - Your Federal Income Tax - Excluding the Gain Use   to find additional instances of index items.

Taxmap/pub17/p17-080.htm#TXMP0ef3b721 Figuring Gain or Loss

Figuring Gain or Loss

To figure the gain or loss on the sale of your main home, you must know the selling price, the amount realized, and the adjusted basis. Subtract the adjusted basis from the amount realized to get your gain or loss.

		Selling price
	-	Selling expenses
		Amount realized
		Amount realized
	-	Adjusted basis
		Gain or loss

Taxmap/pub17/p17-080.htm#TXMP198b0be6 Selling Price

Selling Price

The selling price is the total amount you receive for your home. It includes money, all notes, mortgages, or other debts assumed by the buyer as part of the sale, and the fair market value of any other property or any services you receive.

Taxmap/pub17/p17-080.htm#TXMP6e1cf275 Payment by employer.

Payment by employer.

You may have to sell your home because of a job transfer. If your employer pays you for a loss on the sale or for your selling expenses, do not include the payment as part of the selling price. Your employer will include it as wages in box 1 of your Form W-2 and you will include it in your gross income as wages on line 7 of Form 1040.

Taxmap/pub17/p17-080.htm#TXMP0a82ba5e Option to buy.

If you grant an option to buy your home and the option is exercised, add the amount you receive for the option to the selling price of your home. If the option is not exercised, you must report the amount as ordinary income in the year the option expires. Report this amount on line 21 of Form 1040.

Taxmap/pub17/p17-080.htm#TXMP1752349b Form 1099-S.

Form 1099.

If you received Form 1099-S, Proceeds From Real Estate Transactions, box 2 (gross proceeds) should show the total amount you received for your home.

However, box 2 will not include the fair market value of any property other than cash or notes, or any services, you received or will receive. Instead, box 4 will be checked to indicate your receipt (or expected receipt) of these items.

If you can exclude the entire gain, the person responsible for closing the sale generally will not have to report it on Form 1099-S. If you do not receive Form 1099-S, use sale documents and other records to figure the total amount you received for your home.

Taxmap/pub17/p17-080.htm#TXMP68b804a5 Amount Realized

The amount realized is the selling price minus selling expenses.

Taxmap/pub17/p17-080.htm#TXMP181304ad Selling expenses.

Selling expenses.

Selling expenses include:

• Commissions,
• Advertising fees,
• Legal fees, and
• Loan charges paid by the seller, such as loan placement fees or "points."

Taxmap/pub17/p17-080.htm#TXMP1e6d5c75 Adjusted Basis

Adjusted Basis

While you owned your home, you may have made adjustments (increases or decreases) to the basis. This adjusted basis must be determined before you can figure gain or loss on the sale of your home. For information on how to figure your home's adjusted basis, see Determining Basis, later.

Taxmap/pub17/p17-080.htm#TXMP74616bcb Amount of Gain or Loss

Amount of Gain or Loss

To figure the amount of gain or loss, compare the amount realized to the adjusted basis.

Taxmap/pub17/p17-080.htm#TXMP45c02069 Gain on sale.

Gain on sale.

If the amount realized is more than the adjusted basis, the difference is a gain and, except for any part you can exclude, generally is taxable.

Taxmap/pub17/p17-080.htm#TXMP2ace253d Loss on sale.

Loss on sale.

If the amount realized is less than the adjusted basis, the difference is a loss. A loss on the sale of your main home cannot be deducted.

Taxmap/pub17/p17-080.htm#TXMP4c5acbfc Jointly owned home.

Home Jointly Owned

If you and your spouse sell your jointly owned home and file a joint return, you figure your gain or loss as one taxpayer.

Taxmap/pub17/p17-080.htm#TXMP527377fa Separate returns.

If you file separate returns, each of you must figure your own gain or loss according to your ownership interest in the home. Your ownership interest is determined by state law.

Taxmap/pub17/p17-080.htm#TXMP07ebd8d1 Joint owners not married.

If you and a joint owner other than your spouse sell your jointly owned home, each of you must figure your own gain or loss according to your ownership interest in the home. Each of you applies the rules discussed in this chapter on an individual basis.

Taxmap/pub17/p17-080.htm#TXMP75652447 Other Dispositions

Disposition

The following rules apply to foreclosures and repossessions, abandonments, trades, and transfers to a spouse.

Taxmap/pub17/p17-080.htm#TXMP54111462 Foreclosure or repossession.

Foreclosure or Repossession

If your home was foreclosed on or repossessed, you have a sale.

You figure the gain or loss from the sale in generally the same way as gain or loss from any sale. But the amount of your gain or loss depends, in part, on whether you were personally liable for repaying the debt secured by the home. See Publication 523 for more information.

Taxmap/pub17/p17-080.htm#TXMP4557596c Form 1099-A and Form 1099-C.

Generally, you will receive Form 1099-A, Acquisition or Abandonment of Secured Property, from your lender. This form will have the information you need to determine the amount of your gain or loss and any ordinary income from cancellation of debt. If your debt is canceled, you may receive Form 1099-C, Cancellation of Debt.

Taxmap/pub17/p17-080.htm#TXMP6afb81c7 Abandonment.

Abandonment

If you abandon your home, you may have ordinary income. If the abandoned home secures a debt for which you are personally liable and the debt is canceled, you have ordinary income equal to the amount of the canceled debt. See Publication 523 for more information.

Taxmap/pub17/p17-080.htm#TXMP6354f21c Trading homes.

Trading homes

If you trade your old home for another home, treat the trade as a sale and a purchase.

Taxmap/pub17/p17-080.htm#TXMP64619016
Example.

You owned and lived in a home that had an adjusted basis of $41,000. A real estate dealer accepted your old home as a trade-in and allowed you $50,000 toward a new home priced at $80,000. This is treated as a sale of your old home for $50,000 with a gain of $9,000 ($50,000 – $41,000).

If the dealer had allowed you $27,000 and assumed your unpaid mortgage of $23,000 on your old home, your sales price would still be $50,000 (the $27,000 trade-in allowed plus the $23,000 mortgage assumed).

Taxmap/pub17/p17-080.htm#TXMP55030a08 Transfer to spouse.

Transfer to Spouse

If you transfer your home to your spouse, or to your former spouse incident to your divorce, you generally have no gain or loss. This is true even if you receive cash or other consideration for the home. Therefore, the rules in this chapter do not apply.

Taxmap/pub17/p17-080.htm#TXMP5df1296d More information.

If you need more information, see Transfer to spouse in Publication 523 and Property Settlements in Publication 504, Divorced or Separated Individuals.

Taxmap/pub17/p17-080.htm#TXMP1e493de9 Determining Basis

Determining Basis

You need to know your basis in your home to determine any gain or loss when you sell it. Your basis in your home is determined by how you got the home. Your basis is its cost if you bought it or built it. If you got it in some other way (inheritance, gift, etc.), its basis is either its fair market value when you got it or the adjusted basis of the person you got it from.

While you owned your home, you may have made adjustments (increases or decreases) to your home's basis. The result of these adjustments is your home's adjusted basis, which is used to figure gain or loss on the sale of your home. See Adjusted Basis, later.

You can find more information on basis and adjusted basis in chapter 14 of this publication and in Publication 523.

Taxmap/pub17/p17-080.htm#TXMP37c37125 Cost As Basis

Cost as Basis

The cost of property is the amount you pay for it in cash, debt obligations, other property, or services.

Taxmap/pub17/p17-080.htm#TXMP2a59863a Purchase.

Purchase.

If you buy your home, your basis is its cost to you. This includes the purchase price and certain settlement or closing costs. Generally, your purchase price includes your down payment and any debt, such as a first or second mortgage or notes you gave the seller in payment for the home. If you build, or contract to build, a new home, your purchase price can include costs of construction, as discussed in Publication 523.

Taxmap/pub17/p17-080.htm#TXMP5cc8e810 Settlement fees or closing costs.

Settlement fees or closing costs.

When you bought your home, you may have paid settlement fees or closing costs in addition to the contract price of the property. You can include in your basis some of the settlement fees and closing costs you paid for buying the home. You cannot include in your basis the fees and costs for getting a mortgage loan. A fee paid for buying the home is any fee you would have had to pay even if you paid cash for the home.

Chapter 14 lists some of the settlement fees and closing costs that you can include in the basis of property, including your home. It also lists some settlement costs that cannot be included in basis.

Also see Publication 523 for additional items and a discussion of basis other than cost.

Taxmap/pub17/p17-080.htm#TXMP2681a66c Adjusted Basis

Adjusted Basis

Adjusted basis is your basis increased or decreased by certain amounts.

Taxmap/pub17/p17-080.htm#TXMP021b29cb Increases to basis.

Increases to basis.

These include any:

1. Additions and other improvements that have a useful life of more than 1 year,
2. Special assessments for local improvements, and
3. Amounts you spent after a casualty to restore damaged property.

Taxmap/pub17/p17-080.htm#TXMP37183566 Decreases to basis.

Decreases to Basis

These include any:

1. Gain you postponed from the sale of a previous home before May 7, 1997,
2. Deductible casualty losses,
3. Insurance payments you received or expect to receive for casualty losses,
4. Payments you received for granting an easement or right-of-way,
5. Depreciation allowed or allowable if you used your home for business or rental purposes,
6. Residential energy credit (generally allowed from 1977 through 1987) claimed for the cost of energy improvements that you added to the basis of your home,
7. Adoption credit you claimed for improvements added to the basis of your home,
8. Nontaxable payments from an adoption assistance program of your employer that you used for improvements you added to the basis of your home,
9. First-time homebuyer credit (allowed to certain first-time buyers of a home in the District of Columbia), and
10. Energy conservation subsidy excluded from your gross income because you received it (directly or indirectly) from a public utility after 1992 to buy or install any energy conservation measure. An energy conservation measure is an installation or modification that is primarily designed either to reduce consumption of electricity or natural gas or to improve the management of energy demand for a home.

Taxmap/pub17/p17-080.htm#TXMP117a7a66 Improvements.

Improvements

These add to the value of your home, prolong its useful life, or adapt it to new uses. You add the cost of additions and other improvements to the basis of your property.

Taxmap/pub17/p17-080.htm#TXMP1256899f
Examples.

Putting a recreation room or another bathroom in your unfinished basement, putting up a new fence, putting in new plumbing or wiring, putting on a new roof, or paving your unpaved driveway are improvements. An addition to your house, such as a new deck, a sunroom, or a garage, is also an improvement.

Taxmap/pub17/p17-080.htm#TXMP7ee20387 Repairs.

Repairs

These maintain your home in good condition but do not add to its value or prolong its life. You do not add their cost to the basis of your property.

Taxmap/pub17/p17-080.htm#TXMP6eb1e1f5
Examples.

Repainting your house inside or outside, fixing your gutters or floors, repairing leaks or plastering, and replacing broken window panes are examples of repairs.

Recordkeeping. You should keep records to prove your home's adjusted basis. Ordinarily, you must keep records for 3 years after the due date for filing your return for the tax year in which you sold your home. But if you sold a home before May 7, 1997, and postponed tax on any gain, the basis of that home affects the basis of the new home you bought. Keep records proving the basis of both homes as long as they are needed for tax purposes. The records you should keep include:

• Proof of the home's purchase price and purchase expenses,
• Receipts and other records for all improvements, additions, and other items that affect the home's adjusted basis,
• Any worksheets you used to figure the adjusted basis of the home you sold, the gain or loss on the sale, the exclusion, and the taxable gain,
• Any Form 2119, Sale of Your Home, that you filed to postpone gain from the sale of a previous home before May 7, 1997, and
• Any worksheets you used to prepare Form 2119, such as the Adjusted Basis of Home Sold Worksheet or the Capital Improvements Worksheet from the Form 2119 instructions.

Previous Page:  Publication 17 - Your Federal Income Tax - Selling Your Home Next Page:  Publication 17 - Your Federal Income Tax - Excluding the Gain Use     to find additional instances of index items.