Taxes on Primary Home Sales

One of the questions that comes up most frequently from tax preparation clients is, "I sold my home, will I be taxed on the proceeds?"

Well, the good news is that if you are selling your primary residence, you most likely will not have a tax liability.

As a home owner, the first $250,000 ($500,000 if married filing jointly) of profit from the sale is excluded from your taxable income if you've lived in the home as your primary residence for at least 2 of the most recent 5 years. 

Example #1: 

Paul and Penny purchased their home in 2009 for $200,000. They then sold it for $400,000 after living there for 10 years in 2019.

They technically "profit" $200,000 from the sale, but they will not be taxed on that amount because it was both their primary residence and the amount they profited was under $500,000. 

Example #2:

Jerry purchased his home in 2020 for $500,000 and sold it for $800,000 when the market was hot in 2022, which means he made $300,000 on the sale of his home.

The first $250,000 of profit is excluded because he lived there for two years, so he will likely only be taxed on the difference of $50,000.

However, Jerry most likely made improvements to the home that can offset his profit. Jerry is going to consult with his tax pro to find out how to do so. 

If you have questions about being taxed on the sale of your home, be sure to discuss your situation with your tax professional before you file your tax return.