After years of appreciation, many Dane County homeowners wonder whether they’ll owe tax when they sell. For most people selling a primary residence, the answer is no, thanks to the federal home sale exclusion.
The basic rule
If you meet the requirements, you can exclude up to $250,000 of gain from the sale of your main home, or up to $500,000 if you’re married and file jointly. Gain is generally your sale price minus selling costs and your adjusted basis.
The ownership and use tests
To qualify, you generally must have owned the home and used it as your main home for at least two of the five years before the sale. The two years don’t have to be consecutive. You also generally can’t have used the exclusion on another home sale in the previous two years.
Your basis is more than the purchase price
Your basis starts with what you paid, plus certain purchase costs, and increases with capital improvements such as an addition, a new roof or a remodeled kitchen. Keeping records of improvements can reduce your taxable gain if your profit is close to or above the limit.
When the exclusion may be limited
- Partial exclusions may be available if you sell early because of a job change, health reasons or certain unforeseen circumstances.
- Periods when the home wasn’t your main residence, such as time as a rental, can affect the calculation.
- Gain above the exclusion amount may be taxable.
Talk with a tax professional
This is general information, not tax advice. A CPA or tax advisor can apply the rules to your situation before you list.
When you’re ready, start with a free home valuation and our guides to pricing your home and buying and selling at the same time.