What is the basis of property received as a gift?
To figure the basis of property you get as a gift, you must know its adjusted basis to the donor just before it was given to you. You also must know its fair market value (FMV) at the time it was given to you and any gift tax paid on it. Refer to Publication 551, Basis of Assets, for specific details.
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I have investment property. Can you explain the term basis of assets?
Basis is your investment in property for tax purposes. Before you can figure any gain or loss on a sale, exchange, or other disposition of property, or figure allowable depreciation, you must determine the adjusted basis. Adjusted basis is the result of increasing or decreasing your original basis according to certain events. Your original basis is usually your cost to acquire the asset. Additional information on basis and adjusted basis can be found in Tax Topic 703, Basis of Assets, or Publication 551, Basis of Assets.
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I sold my home last year. Do I have to report the sale?
Report the sale of your main home on your tax return only if you have a gain and at least part of it is taxable. Report any taxable gain on Form 1040, SCHEDULE D, Capital Gains and Losses. Form 2119, Sale of Your Home is obsolete beginning in 1998. For more information, refer to Publication 523, Selling Your Home.
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I sold my primary residence this year. What form do I need to file?
If you meet the ownership and use tests, you will generally only need to report the sale of your home if your gain is more than $250,000 ($500,000 if married filing a joint return). This means that during the 5-year period ending on the date of the sale, you must have:
- Owned the home for at least 2 years (the ownership test), and
- Lived in the home as your main home for at least 2 years (the use test).
If you owned and lived in the property as your main home for less than 2 years, you may still be able to claim an exclusion in some cases. The maximum amount you can exclude will be reduced. If you are required to report a gain, it is reported on Form 1040, SCHEDULE D, Capital Gains and Losses.
For additional information on selling your home, refer to Publication 523, Selling Your Home.
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If I sell my home and use the money I receive to pay off the mortgage, do I have to pay taxes on that money?
It is not the money you receive for the sale of your home, but the amount of gain on the sale over your cost, or basis, that determines whether you will have to include any proceeds as taxable income on your return. You may be able to exclude any gain from income up to a limit of $250,000 ($500,000 on a joint return in most cases). If you can exclude all of the gain, you do not need to report the sale on your tax return.
For additional information on selling your home, refer to Publication 523, Selling Your Home.
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If I take the exclusion of capital gain tax on the sale of my old home this year, can I also take the exclusion again if I sell my new home in the future?
There is no limit on the number of times you can exclude the gain on the sale of your principle residence so long as you meet the ownership and use tests.
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What is the amount of capital gains from the sale of a home that can be excluded if sold in less than the two year waiting period?
If you owned and lived in the property as your main home for less than 2 years, you may still be able to claim an exclusion in some cases. The maximum amount you can exclude will be reduced. Refer to Reduced Maximum Exclusion and Special Situations in Publication 523, Selling Your Home.
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I lived in a home as my principle residence for the first 2 of the last 5 years. For the last 3 years, the home was a rental property before selling it. Can I still avoid the capital gains tax and, if so, how should I deal with the depreciation I took while it was rented out?
If, during the 5-year period ending on the date of sale, you owned the home for at least 2 years and lived in it for at least 2 years, you can exclude up to $250,000 of the gain ($500,000 on a joint return in most cases). However, you cannot exclude the portion of the gain equal to depreciation allowed or allowable for periods after May 6, 1997. Since you cannot exclude all of the gain, report the entire gain realized on Form 1040, SCHEDULE D line 8. Report the amount of exclusion you qualify for on the line directly below the line on which you report the gain. Write Section 121 exclusion in column (a) of that line and show the amount of the exclusion in column (f) as a loss (in parentheses).
For additional information on selling your home, refer to Publication 523, Selling Your Home.
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How do you report the sale of a second residence?
Your second home is considered a capital asset. Use Form 1040, SCHEDULE D to report sales, exchanges, and other dispositions of capital assets.
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