It is no secret that our sense of normal has been shattered by COVID-19. Between working from home, economic shutdown, and a lot more time at home, you may be thinking about a move or change to your living situation. Whether you are feeling the pain of not having a designated office space because you’re young or four-legged “co-workers” don’t follow the rules if living in city settings isn’t as appealing as it once was, or if unfortunately the economic disruption has you thinking of downsizing, here are 3 tax questions that may come up when selling your primary residence.

#1 Will I have to include the income from the sale in my tax return?

Many times, the gain on a sale of your primary residence will not be included in your income for tax purposes. There are a few qualifications that need to be met to take advantage of the exclusion. The first qualification test is the ownership test, you need to have owned the home for a minimum of two years. The second qualification is the use test, it must have been your primary home for a minimum of two years. If you pass the tests, you are on your way to excluding up to $250,000, if you file your taxes as married filing joint that number increases to $500,000. Remember that this is the gain, not the sale price, you will need to subtract your adjusted basis in the property from the sale price to figure out the gain that you have. If you receive a Form 1099-S, check with your tax professional to determine if you need to report the sale on your tax return even though there may not be a tax effect.

#2 Can I deduct a loss on the sale on tax return?

No, you will not be able to deduct a loss on the sale of your primary residence.

#3 What happens if the home was used for business?

It depends on the specific circumstances but you may still be able to exclude the gain from your income. The depreciation that was allowed or allowable as a deduction will determine if there is a portion of the gain that is not excluded. However, if you claimed business use of home and used the simplified method you will not need to adjust. Keep in mind that the deductions for unreimbursed employee expenses were cut for tax years starting in 2018 so if you are working for your employer from home, it is not going to change the home to a business-use property. If you are an independent contractor or self-employed you may still be able to take advantage of deductions related to business use of your home.

Contact Us with Your Questions

If you have questions or need help with calculations involved in selling your home, please contact our professionals at The Innovative CPA Group at 203-489-0612. Or contact us online.  Please refer to our COVID-19 Resource page that provides information on multiple relief options.