What are the tax consequences and reporting requirements upon the sale of a principal residence?
In the absence of an exclusion, the gain on the sale of a principal residence is subject to tax. The tax is computed by determining the gain on the sale, which is generally the amount realized on the sale (contract price less selling costs) less the cost of acquiring the home plus capital improvements to the home. If the home were held for more than one year, the gain would be taxed as a long-term capital gain.
In the absence of an exclusion, the gain on the sale of a principal residence is subject to tax. The tax is computed by determining the gain on the sale, which is generally the amount realized on the sale (contract price less selling costs) less the cost of acquiring the home plus capital improvements to the home. If the home were held for more than one year, the gain would be taxed as a long-term capital gain. The law provides an exemption from tax if a taxpayer has owned and lived in a home as the taxpayer’s primary residence for two of the last five years before the sale of the property. Single taxpayers can exclude up to $250,000 of the gain. Married taxpayers filing a joint return can exclude up to $500,000. The exclusion can be used once every two years. If a taxpayer sells a principal residence at a gain and qualifies for the exclusion no reporting is required. If a taxpayer sells a principal residence at a gain and does not qualify for the exclusion, the taxpayer will report th
