Publication 523 |
2001 Tax Year |
Reporting the Gain
Do not report the 2001 sale of your main home on your
tax return unless:
- You have a gain and you do not qualify to exclude all of it,
or
- You have a gain and choose not to exclude it.
If you have any taxable gain on the sale of your main home that
cannot be excluded, report the entire gain realized (line 5 of
Worksheet 2) on Schedule D (Form 1040). Report it on line 1
or line 8 of Schedule D, depending on how long you owned the home. If
you qualify for an exclusion (line 9 of Worksheet 2), show
it on the line directly below the line on which you report the gain.
Write "Section 121 exclusion" in column (a) of that line and show
the amount of the exclusion in column (f) as a loss (in parentheses).
If you used the home for business or to produce rental income
during the year of sale, you must use Form 4797 to report the sale of
the business or rental part (or the sale of the entire property if
used entirely for business or rental in that year). See Business
Use or Rental of Home, earlier.
Installment sale.
Some sales are made under arrangements that provide for part or all
of the selling price to be paid in a later year. These sales are
called "installment sales." If you finance the buyer's purchase
of your home yourself, instead of having the buyer get a loan or
mortgage from a bank, you probably have an installment sale. You may
be able to report the part of the gain you cannot exclude on the
installment basis.
Use Form 6252, Installment Sale Income, to report the
sale. Enter your exclusion (line 9 of Worksheet 2) on line
15 of Form 6252.
Seller-financed mortgage.
If you sell your home and hold a note, mortgage, or other financial
agreement, the payments you receive generally consist of both interest
and principal. You must report the interest you receive as part of
each payment separately as interest income. If the buyer of your home
uses the property as a main or second home, you must also report the
name, address, and social security number (SSN) of the buyer on line 1
of either Schedule B (Form 1040) or Schedule 1 (Form 1040A). The buyer
must give you his or her SSN and you must give the buyer your SSN.
Failure to meet these requirements may result in a $50 penalty for
each failure. If you or the buyer does not have and is not eligible to
get an SSN, see the next discussion.
Individual taxpayer identification number (ITIN).
If either you or the buyer of your home is a nonresident or
resident alien who does not have and is not eligible to get an SSN,
the IRS will issue you (or the buyer) an ITIN. To apply for an ITIN,
file Form W-7, Application for IRS Individual Taxpayer
Identification Number, with the IRS.
If you have to include the buyer's SSN on your return and the buyer
does not have and cannot get an SSN, enter the buyer's ITIN. If you
have to give an SSN to the buyer and you do not have and cannot get
one, give the buyer your ITIN.
An ITIN is for tax use only. It does not entitle the holder to
social security benefits or change the holder's employment or
immigration status under U.S. law.
More information.
For more information on installment sales, see Publication 537,
Installment Sales.
Illustrated Example
Emily White, a single person, bought a home in 1990. She lived in
the home until May 31, 1999, when she moved out of the house and put
it up for rent. Emily rented her home until May 31, 2000. She moved
back into the house and lived there until she sold it on January 10,
2001.
Emily can exclude gain on the sale of her home because she owned
and lived in the home for at least 2 years of the 5-year period ending
on the date of the sale.
Emily's records show the following:
1) |
Original cost |
$ 50,000 |
2) |
Legal fees for title search |
750 |
3) |
Back taxes paid for prior owner |
1,500 |
4) |
Improvements (deck) |
2,000 |
5) |
Selling price |
195,000 |
6) |
Commission and expenses of sale |
15,000 |
7) |
Depreciation claimed after May 6,
1997 |
1,642 |
Emily uses Worksheet 1 to figure the adjusted basis
of the home she sold ($52,608). She uses Worksheet 2 to
figure the gain on the sale ($127,392) and the amount of her exclusion
($125,750). Emily cannot exclude $1,642, the part of her gain equal to
the depreciation deduction claimed while the house was rented.
Emily reports her gain and exclusion in Part II of Schedule D (Form
1040). She enters $1,642 on line 12 of the Unrecaptured Section
1250 Gain Worksheet in the Schedule D (Form 1040) instructions.
She has no gains or losses from the sale of property other than the
gain from the sale of her home so, after completing that worksheet,
she also enters $1,642 on line 19 of Schedule D. She then figures her
tax using Part IV of Schedule D.
Emily's completed Worksheets 1 and 2 and the
front page of her Schedule D appear on pages 18 and 19. Page 2 of
Schedule D and her Unrecaptured Section 1250 Gain Worksheet
are not shown.
worksheets for Emily White
Schedule D for Emily White
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