IRS Definition of Main Home and Use Test

• The IRS defines a main home using several factors. The IRS considers the address listed on the taxpayer's tax returns, car and voter registration cards and driver's license to determine if the home is the taxpayer's main home. The IRS also looks at where the taxpayer's employment is located, where other family members reside and where the taxpayer's bank is located. The IRS can use other determining factors to decide whether the taxpayer's property is his main home.
  
  

Gain or Loss Tax Liabilities and Schedule D of Form 1040

• Taxpayers who qualify for the tax exclusions may exclude up to $250,000 of gain received from the sale. Married taxpayers who file jointly can exclude up to $500,000 of gain. Taxpayers report any gains and profits on Schedule D of IRS Form 1040. The taxpayer's gain is typically the difference between the amount the taxpayer paid for the property and the final selling price of the home minus selling expenses and adjusted basis. The IRS provides tax guidance through Worksheets and Instructions for Schedule D of Form 1040.
  
  

Amount Realized and Profits

• The IRS taxes the amount the rental property owner realized on the sale of the home after subtracting selling fees and adjustments to basis. Selling fees include real estate or brokerage commissions, fees for advertising the sale, attorney's fees and points the seller paid on the purchaser's behalf during the real estate settlement as an incentive for the purchaser to buy the home.
  
  

Adjusted Tax Basis

• The taxpayer's adjusted basis includes any improvements or adjustments for decreases to the home's value while the taxpayer owned the home. Taxpayers who deducted the cost of any repairs incidental to producing rental income must account for any depreciated tax savings received after May 6, 1997. If the taxpayer paid for improvements that added to the home's value or increased the home's useful life, then the costs of the improvements or additions are added to the taxpayer's basis. The additional amounts to basis may provide taxpayers with less reportable income or tax liabilities. However, decreases to basis include the depreciations allowed during any previous tax years, energy efficient tax credits the taxpayer received, insurance payments for casualty losses and other factors the taxpayer received in tax savings.
  
  

Tax or Legal Advice

• Since tax laws may frequently change, you should not use this information as a substitute for legal or tax advice. Seek advice through a certified accountant or attorney licensed to practice tax law in your jurisdiction.