If you sold or exchanged your main home before May 7, 1997, you may
have to pay tax on all or part of the gain.
For sales made prior to May 7, 1997 the law allows you to postpone
gain from the sale if you replace your old home with a new home costing
at least as much as the adjusted sales price of the home. This must be
done within time limits. The time you are allowed to replace your old home
and occupy your new home is usually a period that begins two years before
and ends two years after you sell your old home. Certain members of the
armed forces or people living abroad may be entitled to a longer replacement
period.
The adjusted sales price of the old home is the selling price minus
selling expenses and fixing up expenses. If your new home costs less than
the adjusted sales price of your old home, or you do not replace your old
home within the replacement period, you will have a taxable gain.
If you had not yet replaced your home when you filed your tax return,
but intended to do so, complete Part 1 Form
2119. You must complete a second 2119 when you replace the home. If
you do not replace your old home within the replacement period, or you
do not spend as much as the adjusted sales price, you must file an amended
return, Form 1040X, for the year of the sale. Attach the completed Form
2119 and Schedule D Form 1040.
You must pay tax on the taxable amount of the gain plus interest calculated
from the due date of the original return.
If you are 55 or older on the date of the sale you may qualify to
exclude up to $125,000 of your taxable gain. Whether or not you have a
gain, you must attach Form 2119 to your Form 1040 for the year of the sale.
You cannot deduct a loss on the sale of your home.
If you sold your home under a contract that provides for part or
all of the selling price to be paid in a later year, you made an "installment
sale". Select Topic 705 for more information.
For sales and exchanges made after May 6, 1997 select Topic
701.
For more information see Publication 523, Selling Your Home.
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