Tax Breaks on Home Sales
Couples filing jointly who have lived in the house for at least two of the past five years can exclude up to $500,000 in profit from taxable income.

I’ve lived in my house for eight years, but I have to move for a new job and plan to sell it soon. What are the tax rules for selling a home? --B.D., Miami
For most sellers there is no tax consequence because most home-sale profit is tax-free. Assuming you have lived in the house for at least two of the five years leading up to the sale, you can exclude up to $250,000 of profit from your taxable income ($500,000 if you are married and file jointly). If this rule protects all your profit, you don’t even need to report the sale to the IRS.
To calculate the size of your profit, take the sales price of the house (minus certain expenses, such as the agent’s commission and any points you paid for the buyer) and subtract the adjusted tax basis, which is the original cost of the home plus certain settlement fees or closing costs you paid. You can also add to the basis the cost of major home improvements, such as a new roof, a remodeled kitchen, and a new heating and air-conditioning system. (Basic repairs and maintenance don’t count.)

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Gains above the exclusion amount should be reported on Schedule D. For more details, see IRS Publication 523, Selling Your Home.
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As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.
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