If you own a home, there is a chance that you may be able to exclude part of the income that you receive from the sale of your home from your tax return. This must be on the home that you live in most of the time and there is a set of tests that must be passed in order for you to qualify.
Ownership and Use Tests
In order to be excluded from paying certain taxes, you must meet certain criteria as a homeowner. In the 5-years prior to selling or trading your home, you must have done one of the following things:
Been the registered owner for two of the last five years, while also living in the home for two of these years.
If you are able to qualify with those two criteria, you are able to exclude up to $250,000 from your income tax return.
If you are able to exclude this gained income, you just leave this money off of your income tax return form completely. If you do not meet the criteria, however, you must include this income on your form in full. You cannot deduct a loss from the sale of your main home.
You do not even have to include the sale of your main home on your income tax form unless you are required to pay taxes on it. Remember that you still have to pay taxes on any gains that are more than $250,000, so if your home sold for $300,000, you will owe taxes on $30,000 of that income.
More Than One Home
Some people are lucky enough to own more than one home, but you can only receive this tax break on the sale of your main home. If you sell a secondary home, you are responsible for paying taxes on it. It is easy to tell which is which because the main home is the one that you live in most of the time.
If you own a house in the city and in the country, the home in the city will probably be your main home, as long as you use it while you are at work. If you live in the country and the city home is just for vacation, then the opposite is true.
If you own a house, but are currently living in a different house that you are renting, the rented house is your main residence.
Business Use or Rental of Home
You can still get a tax break on a home if you are not currently living in it, but you must have lived in it for two of the last five years, with no exceptions.