1. A home owner is qualified to exclude the gain from income if he/she has owned and used the home as their main home for 2 out of 5 years prior to the date of the sale.
2. A home owner may be able to exclude up to $250,000 (for single return) or $550,000 (for joint return) from the gain on the sale of their main home. There is no need to report the sale on the tax return if they can exclude all of the gain.
However, if the gain cannot be excluded, it will be taxable.
3. A home owner cannot deduct a loss from the sale of their main home.
4. If a home owner bought a home in 2008 and received a first-time home buyer credit, he/she must use the purchased property as their main home for a period of 15 years. The credit must be paid back over a period of 15 years. If the purchased property ceases to be the main residence within 15 years, then the owner must repay the unpaid portion of the home buyer credit.
If the first-time home buyer credit was claimed in 2009 or 2010, then the credit is not required to be paid unless the purchase property ceases to be the principal residence of the owner within 36 months from the purchase date of the property.
The repayment must be made whether there was a gain or a loss on the sale of the property.
5. Worksheets are available on http://www.irs.gov/pub/irs-pdf/p523.pdf to help the home seller figure their income, gain or loss, exclusion and taxable gain on the sale of their home.
6. For any change in address, inform IRS and the US Postal Service. Form 8822 (Change of Address) is available on IRS website.
For a more detailed explanation on preparing tax returns for home sellers, please refer to http://www.irs.gov/pub/irs-pdf/p523.pdf.
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