Do I Need to File a Tax Return if I Only Have Excludable Capital Gains From the Sale of a House?

If you earn a profit from the sale of your home, you may have a taxable gain in the eyes of the Internal Revenue Service. Fortunately, the IRS allows taxpayers to exclude up to $500,000 of gains on the sale of a house if they meet certain requirements. If you qualify to exclude the full amount of the gain and you don't have any other income, you may not need to file a tax return.

IRS Filing Requirements

Whether you must file an income tax return depends on your filing status and the amount of gross income you earned during the year. Your gross income includes any income you earn that isn't exempt from tax, including taxable gains earned on the sale of your home. The amount of income you can earn without filing a return increases if you are over 65, filing jointly with a spouse or filing as head of household.

IRS Rules

According to IRS Publication 523, you don't need to report the sale of a home on your tax return unless you choose not to exclude a portion of your gains, don't qualify to exclude all of your gains or received a copy of Form 1099-S. The IRS requires Form 1099-S for any sale or exchange of real estate, unless you provide a written certification to the buyer or his agent indicating that you qualify to exclude the gain from your income. If you receive this form for any reason, you must report the sale, which will require you to file an income tax return.

Filing for a Refund

Even if the IRS doesn't require you to report the sale of your home and your income is below published limits, you may still want to file an income tax return if you qualify for a refund. For example, if your employer withheld federal tax from your paycheck, or if you qualify for the Earned Income Tax Credit, you should file a tax return to claim your refund. You may also be entitled to a refund if you can claim the American Opportunity Credit for education-related expenses.

Considerations

If the sale of your home requires you to file a tax return, you must file the return and pay any tax you owe by April 15 of the year following the sale. If you must report the sale of your home, list the proceeds on Form 8949 and indicate the amount you qualify to exclude from your taxable income, if any.