CAPITAL GAIN on the Sale of Your Home.  You
need to determine the CAPITAL GAIN on the sale
of your Primary Residence! 

Main Home Definition



Usually, the home you live in most of the time is your main home and
can be a:

Primary Residence Exclusion
You may qualify to exclude from your income all or part of any gain from the
sale of your main home.  This means that, if you qualify, you will not have to
pay tax on the gain up to the limit described under the Maximum Exclusion. 
Click this link to learn more about this rule, which is commonly known as the
"Primary Residence Exclusion".


Land
If you sell the land on which your main home is located, but not the house
itself, you cannot exclude any gain you have from the sale of the land.

Example:  On May 10, 2007, Bill Alexander sold the land on which his house
was located.  Bill purchases another piece of land and moves his house to it.
This sale is not considered a sale of his main home, and he cannot exclude
any gain on the sale of the land.


Vacant Land
The sale of vacant land is not a sale of your main home unless:

If these requirements are met, the sale of the home and the sale of the
vacant land are treated as one sale and only one maximum exclusion can
be applied to any gain.



More Than One Home
If you have more than one home, you can exclude gain only from the sale
of your main home.  You must include in income gain from the sale of any
other home.  If you have two homes and live in both of them, your main home
is ordinarily the one you live in most of the time.

Example 1:  Mikenzie Laird owns and live in a house in Los Angeles.  She
also owns a beach house in San Diego, which she uses during the summer. 
The house in Los Angeles is MiKenzie's main home.

Example 2:  Joshua owns a house in Ventura but lives in another house in
Oxnard that he rents.  The rented house is Joshua's main home. 

In addition to the amount of time you live in each home, other factors used
to determine your main home are:

Calculating Gain or Loss on Primary Residence
To determine the gain or loss on the sale of your principal
residence, you must determine the selling price, the amount
realized, and the adjusted basis.  The formula is as follows:

Selling Price (A)
The selling price is the total amount you receive for your home.  It
includes money, all notes, mortgages, or other debt assumed by the
buyer as part of the sale, and the fair market value of any other
property or any services you receive.

Selling Expenses (B)
Selling expenses include:

Amount Realized (C)
The amount realized is the selling price minus selling expenses.

Adjusted Basis (D)
While you owned your home, you may have made adjustments
(increases or decreases) to the basis.  This adjusted basis must be
determined before you can figure gain or loss on sale of your home.


Example:  Brett purchases a home 5 years ago for $250,000.  He
plans on selling it now for it's current fair market value of $675,000.
Over time he made improvements to his house at a total cost of
$40,000.  The taxable gain on the sale of his primary residence is
$135,000 determined as follows:
 

Note that you need to keep detailed records to prove your
adjusted basis if you make improvements.  You also need to be
aware that if you take a depreciation deduction, due to having a
home office for example, you will need to recapture the cost of the
depreciation on the sale of your primary residence.  This is
covered in detail on the property selling main page.


Loss on Sale of Primary Residence
A loss on the sale of your principal residence is NOT deductible.
If part of your principal residence was used for business you will
treat the sale as if two pieces of property were sold.  A loss is
deductible only on the business part. 


Click here to leave selling your main home and return to
property selling main