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 old 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, you should have completed Part 1 Form 2119.
You must complete a second Form 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".
See Topic 705 for more information.
For sales and exchanges made after May 6, 1997 see Topic 701.
For more information see Publication 523, Selling Your Home.
Publications and forms may be downloaded from this site,
or ordered by calling 1-800-829-3676.
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