Do you owe tax on the profit when you sell your house?

A big profit doesn’t always mean a big tax bill

If you’ve owned your house for years, selling it can leave you with a big profit, and it’s natural to wonder how much of that goes to taxes. If the house was your main home, the IRS lets you skip tax on a big part of that profit.

Who qualifies

To qualify, you need to have owned the house and lived in it for at least two of the five years before you sell. Those two years don’t have to be in a row, but they do have to fall within the five years that end on the day you sell.

Generally, you can’t use this break if you already used it on another home sale in the two years before.

How much of the profit is tax-free

• If you file your taxes single, up to $250,000 of profit is tax-free.
• If you’re married and file a joint tax return, it’s up to $500,000. To get the full $500,000, both spouses generally need to have lived in the home for at least two of the five years.

Only the profit above that amount gets taxed. So if you meet these rules and your profit is under those amounts, you usually won’t owe any tax on the sale of your home.

If you’ve owned the house a long time and the profit could be close to the limit, it helps to run the numbers before you list it, not after it sells.

How we handle it

At Sansone CPA & Financial, we coordinate your tax, investment, and retirement decisions so a home sale fits into the rest of your tax picture. That is part of our tax preparation and tax planning in Crystal Lake, IL.