BOULDER, CO, Apr 19, 2024—Many first-time homeowners wonder how capital gains work when it comes to selling their home. Mainly, can you exclude these gains come tax time? The answer, according to Phil Boren, Broker Associate of RE/MAX of Boulder, Inc., is yes, but only if you meet certain criteria.
“If you sell your primary residence, you may be able to exclude up to $250,000 of gain – $500,000 for married couples – from your federal tax return,” explains Boren. However, in order to qualify for this exclusion, the IRS says your home must have been owned by you and used as your main home for a period of at least two out of the five years prior to its sale.
“You also must not have excluded gain on another home sold during the two years before the current sale,” says Boren. Special rules apply for members of the armed, uniformed and foreign services and their families in calculating the five-year period.
If you do not meet the ownership and use tests, you’re not completely out of luck. According to Boren, you may use a reduced maximum exclusion amount, but only if you sold your home due to health, a change in place of employment, or unforeseen circumstances.
“If you can exclude all the gain from the sale of your home, you do not report it on your federal tax return,” says Boren. If you cannot exclude all the gain, or you choose not to, you must use Schedule D of Form 1040, Capital Gains or Losses, to report the total gain and claim the exclusion you qualify for.
Wait, what if you have more than one home? “For more than one home, you can exclude the gain only from the sale of your main residence,” explains Boren. You must pay tax on the gain from selling any other home. “If you have two homes and live in both of them, your main home is usually the one you live in most often,” says Boren.
For more information on real estate, please contact RE/MAX of Boulder, Inc. at philboren@gmail.com, 303-441-5647, or RE/MAX of Boulder, Inc..
Phil Boren is a 26-year veteran real estate Broker and Realtor, specializing in consulting with buyers and sellers in Boulder, CO and along the Front Range of Northern Colorado. Held Real Estate Broker's license in Texas, California and Colorado; Managing Broker for over 200 agents and Brokers for Century 21 and RE/MAX franchises. Award-winning Realtor with experience in management, sales, marketing, relocation, appraisal, REO, BPO's, foreclosures, short sales; previously held the MAI designation from the Appraisal Institute. Experienced in both residential and commercial real estate and achieved the No. 14 individual ranking in the 5-state, Mt. States Region for RE/MAX International in 2001, based on sales volume. Received my BSBA in Finance and Real Estate from the University of Arkansas in Fayetteville, where he was a 4-year starter and 4-year football letterman for Hall-of-Fame coach, Lou Holtz.