Skip to main content

How to Determine a Gain or Loss on Sale of Personal Residence

Question:

Does a minister need to report the gain or loss on the sale of his personal residence?

Answer:

IRS Publication 523 has complete details on Selling Your Home, but we will provide a quick overview.

The minister must know the selling price, the amount realized, and the adjusted basis in order to determine the gain or loss. The following formula can be used by a resident to determine his or her gain or loss:

  Selling Price
- Selling Expenses
= Amount realized
- Adjusted basis
= Gain or loss

The selling price is the total amount the minister receives for the home.

The amount realized is found by subtracting selling expenses from the selling price. Some common selling expenses include commissions and fees that were directly related to the sale of the home.

The adjusted basis consists of the increases or decreases of value that the home has incurred over the period of ownership by the resident. Look at IRS Publication 523 for instructions on how to determine the adjusted basis of a home.

The gain or loss is the difference between the amount realized and the adjusted basis. If the difference is a positive number, then there is a gain; if the difference is a negative number, then there is a loss. Generally, a gain on the sale of a home is taxable while a loss is not deductible. However, like most tax rules, there are exceptions!

According to 26 U.S. Code § 121, “Gross income shall not include gain from the sale or exchange of property if, during the 5-year period ending on the date of the sale or exchange, such property has been owned and used by the taxpayer as the taxpayer’s principal residence for periods aggregating 2 years or more.”

The code goes on to explain that a single individual can exclude the gain up to $250,000, while a husband and a wife who file a joint return can exclude up to $500,000 of the gain.

In order to qualify for this special exclusion of gain, residents must meet the ownership test and the use test. This means that during the 5-year period ending on the date of the sale, the resident must have owned the home for at least two years (the ownership test) and lived in the home as a main home for at least two years (the use test). Also, the resident must not have excluded gain from the sale of another home during the 2-year period ending on the date of the sale. Details and exceptions to these tests can be viewed in IRS Publication 523.

Comments

Popular posts from this blog

Review: Form 1099 Payments to 501(c)(3) Organizations

Question: A church rented space from another church last year. Should it request a completed Form W-9 and issue Form 1099-MISC? Answer: Payments from one 501(c)(3) organization to another 501(c)(3) organization are not subject to Form 1099-MISC reporting. The IRS Instructions for Form 1099-MISC state that "payments to a tax-exempt organization" are exempt from reporting a Form 1099-MISC.  The following are typical examples of payments of $600 or more by a church which are subject to reporting a Form 1099-MISC: Rent paid to an individual (non-corporation) Payments for services rendered by individuals who are not employees (e.g. janitorial service, facilities, snow removal, guest speakers) Support sent directly to missionaries

Special Topic: U.S. Olympic Champion Ben Peterson's Autobiography "Road to Gold"

Road to Gold , by Ben Peterson We are privileged to serve our client Ben Peterson and Camp of Champs, the wrestling ministry he founded   and directs. Ben wrestled for more than 16 years, coached on a collegiate level for 28  years, and has directed Camp of Champs for more than 40 years. We have read his autobiography and found Ben's dedication to the sport and his faith to be inspiring. If you are looking for a good story we highly recommend Ben's  Road to Gold. In Road to Gold , Ben shares the lessons he learned throughout his upbringing and how they led him to achieve Olympic victory. Ben states a key element of his youth was the consistency of his parents. He was encouraged to read the Bible every day from an early age, which he now describes as the most stabilizing habit in his life. Throughout his story Ben also emphasizes the importance of confidence, solid goals, hard work, and consistency. These qualities helped Ben throughout his life and wrestling career, from learni

When you don't know what you don't know

Here at MinistryCPA, we recognize that many churches rely on volunteers and/or part-time treasurers and financial secretaries.  With this in mind, we seek to come alongside ministries in providing the much-needed support to ensure that they are operating in a manner that is both compliant with governing authorities and taking advantage of opportunities for improved stewardship of ministry and employer financial resources.  Please consider this brief checklist to determine if your ministry needs to look further into areas that could be classified as “We don’t know if we are compliant.” Please check all compliance requirements that are currently being met: File quarterly Form 941 or annual Form 944 with the IRS Issue Forms W-2 to all employees and File Forms W-2/ W-3 with SSA Ministerial Housing Allowance is only listed in box 14 of the Form W-2 – it is not included in box 1 Obtain Form W-9 from all individuals/businesses that are paid the cumulative total of $600 or more in the year f