How to Report the Sale of Your Home on Your Tax Return

To report the sale of your home on a federal tax return, you use Form 8949 and Schedule D, entering the sale as a long-term capital asset and applying the Section 121 exclusion as an adjustment if you qualify. Many sellers do not have to report the sale at all. If your closing agent did not issue a Form 1099-S and your entire gain fits within the $250,000 single or $500,000 joint exclusion, the transaction stays off your return.¹ If a 1099-S was issued, if your gain exceeds the exclusion, or if you don’t qualify for the exclusion, the sale goes on the return.

Do You Have to Report the Sale?

Start with the 1099-S. The closing agent can skip issuing one when the sale price is $250,000 or less (or $500,000 if the seller certifies they are married) and the seller signs a written certification that the home is their principal residence and the full gain is excludable.² No 1099-S plus full exclusion generally means no reporting required.

You do have to report the sale if any of these are true:

You received a Form 1099-S at closing or in the mail.
Your gain is larger than the exclusion you qualify for.
You don’t qualify for the exclusion at all, because you didn’t meet the ownership and use tests or you used the exclusion on another sale within the prior two years.
Part of the home was used for business or rental, so you have depreciation to recapture.

When a 1099-S has been filed with the IRS and you leave the sale off your return, the IRS treats the entire gross proceeds as taxable and sends a notice. Reporting the sale and showing the exclusion closes that loop, even if the net tax is zero.

Work Out Your Gain Before You Touch a Form

Both forms need two numbers: your adjusted basis and the amount realized. The difference is your gain or loss.

Adjusted Basis

Your adjusted basis starts with what you paid for the home, including certain purchase closing costs such as title insurance premiums, recording fees, and transfer taxes you paid as the buyer.³ Add the cost of capital improvements. Subtract depreciation you claimed, or were allowed to claim, during any period the home was rented or used for business.

A capital improvement adds value, extends the home’s useful life, or adapts it to a new use. A new roof, a kitchen remodel, a finished basement. Ordinary repairs that keep the home in its current condition do not increase basis. A $30,000 renovation raises your basis by $30,000 and reduces your taxable gain by the same amount; patching drywall does nothing for your basis.⁴

If you ever rented part or all of the home, reduce the basis by the depreciation that was allowable during the rental period, whether or not you actually took the deduction. Skipping it in past years doesn’t save you from the basis reduction at sale.

Amount Realized

The amount realized is the sale price minus selling expenses. Selling expenses include real estate commissions, advertising, and legal fees tied to the sale.⁴ Your closing disclosure itemizes these costs. Subtract adjusted basis from amount realized; the result is your gain or loss.

Applying the $250,000 or $500,000 Exclusion

Section 121 lets a single filer exclude up to $250,000 of gain and a married couple filing jointly up to $500,000.⁵ These dollar amounts don’t adjust for inflation.

To claim the full exclusion, you must have owned the home for at least two of the five years ending on the sale date, and used it as your principal residence for at least two of those five years.⁴ The ownership and use periods don’t have to be the same two years, and neither has to be continuous. For the $500,000 joint amount, at least one spouse must meet the ownership test, both must meet the use test, and neither spouse can have used the exclusion on another sale within the prior two years.⁵

A reduced exclusion is available if you fall short of the two-year tests because of a job change, a health condition, or certain unforeseen events. The reduction is proportional: months you met the test divided by 24, times $250,000 or $500,000.⁴ Separate rules apply to surviving spouses, divorced spouses, and members of the uniformed services, Foreign Service, intelligence community, and Peace Corps.

One wrinkle to watch for. If you used the home for something other than your principal residence during part of your ownership (counting only periods after January 1, 2009), the gain allocated to that “non-qualified use” cannot be excluded even if the total gain is under the cap.⁵ This commonly catches homeowners who rented the property for several years before moving in.

Filling Out Form 8949 and Schedule D

A reportable home sale uses two forms. Form 8949 (Sales and Other Dispositions of Capital Assets) carries the transaction details. Schedule D (Capital Gains and Losses) pulls those totals together with any other capital gains or losses for the year.⁶

Form 8949

Enter the sale on Part II of Form 8949, since a home you’ve owned long enough to meet the exclusion tests is long-term property. Check box F if the sale was reported on a Form 1099-S. List the acquisition date, the sale date, the gross sale price from the 1099-S or closing disclosure, and your adjusted basis.

To claim the Section 121 exclusion, enter code “H” in the adjustments column (column f) and record the excluded amount as a negative number in column g.⁷ If selling expenses weren’t netted into the proceeds on the 1099-S, add those to the negative adjustment too. The IRS walks through a concrete example: a married couple who sold for $320,000 with a $100,000 basis and $20,000 of unreported selling expenses enters a negative $220,000 adjustment ($200,000 exclusion plus the $20,000 expenses), producing a net gain of zero.⁸

Schedule D

Totals from Form 8949 move onto Schedule D and combine with any other capital gains and losses for the year. If the exclusion erased your entire gain, the amount hitting Schedule D is zero and you owe nothing on the sale. If some gain remains taxable, it’s a long-term capital gain, taxed at 0%, 15%, or 20% depending on your total taxable income.⁹

Other Forms That May Come Into Play

Form 8960 for the 3.8% Net Investment Income Tax

A taxable gain above the Section 121 exclusion counts as net investment income and may trigger an additional 3.8% surtax. The excluded portion does not.¹⁰ The surtax applies only if your modified adjusted gross income is above $200,000 (single or head of household), $250,000 (married filing jointly), or $125,000 (married filing separately). These thresholds don’t adjust for inflation.¹¹ If it applies, report it on Form 8960.

Form 4797 if the Home Was a Rental

A rental home does not qualify for the Section 121 exclusion, and depreciation you claimed over the years comes back at sale as “unrecaptured Section 1250 gain,” taxed at a maximum rate of 25%. Any gain above your original cost is taxed at the regular long-term capital gains rates.¹² Report the sale on Form 4797 (Sales of Business Property) rather than Form 8949.¹³ Form 4797 splits the gain into the recapture portion and the remaining capital gain; the recapture flows to Form 1040 and the rest moves to Schedule D.¹⁴ A second home or vacation property that was never rented and never depreciated goes on Form 8949 and Schedule D like any other capital asset.

Form 6252 for an Installment Sale

If you financed part of the sale yourself and will receive payments over more than one tax year, you can use the installment method and report only the gain tied to payments actually received each year. File Form 6252 (Installment Sale Income) in the year of sale and every subsequent year you receive a payment; any interest the buyer pays is separately reported as ordinary income. You can elect out and recognize the full gain upfront by reporting it on Schedule D and Form 8949 (or Form 4797 for business property) on or before the due date of your return, including extensions, for the year of sale.¹⁵ The Section 121 exclusion still applies, reducing the total gain before the installment math.

Form 8824 for a Like-Kind Exchange

Section 1031 lets you defer tax on investment or business real estate by exchanging it for a replacement property, with 45- and 180-day deadlines that cannot be extended.¹⁶ It does not apply to a personal home. If you did one, report it on Form 8824.¹⁷

If You Sold at a Loss

A loss on the sale of a personal home is not deductible. The IRS treats a home you live in as personal-use property, and losses on personal-use property can’t offset other income or capital gains, nor can they feed into the $3,000 annual capital loss deduction that applies to investment assets.¹⁸ If no 1099-S was issued, there’s nothing to report. If one was issued, report the sale so the IRS doesn’t treat the gross proceeds as all gain, but the loss itself provides no tax benefit.

Reporting the Sale of an Inherited Home

Basis works differently on an inherited home. Instead of using the decedent’s purchase price, your basis is stepped up to the property’s fair market value on the date the previous owner died.¹⁹ If a parent bought the house for $80,000 and it was worth $400,000 at death, your basis is $400,000. Sell for $420,000 and the taxable gain is $20,000.

Inherited property is automatically long-term regardless of how long you held it, so any gain qualifies for the long-term capital gains rates.²⁰ Report the sale on Form 8949 and Schedule D. The Section 121 exclusion is available only if you then used the inherited home as your own principal residence and met the ownership and use tests after inheriting it.

Keep Your Records

Hold on to purchase closing statements, receipts for capital improvements, and depreciation schedules for at least three years after the due date of the return for the year you sold.⁴ In practice, keep them longer. If you bought in 2010, remodeled the kitchen in 2015, and sold in 2026, the 2015 receipts support your basis on the 2026 return. Lose them and your basis is lower, your gain higher, and there’s no way to reconstruct the deduction.

1
Internal Revenue Service. Important Tax Reminders for People Selling a Home
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Internal Revenue Service. Instructions for Form 1099-S (04/2025)
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Office of the Law Revision Counsel. 26 USC 1011 – Adjusted Basis for Determining Gain or Loss
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Internal Revenue Service. Publication 523 (2025), Selling Your Home
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Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
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Internal Revenue Service. About Form 8949, Sales and Other Dispositions of Capital Assets
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Internal Revenue Service. Form 8949 Codes
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Internal Revenue Service. Instructions for Form 8949 (2025)
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Internal Revenue Service. Topic No. 409, Capital Gains and Losses
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Internal Revenue Service. Questions and Answers on the Net Investment Income Tax
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Congress.gov. The 3.8% Net Investment Income Tax – Overview, Data, and Policy
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Internal Revenue Service. Treasury Decision 8836 – Section 1(h) Capital Gains Rate
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Internal Revenue Service. About Form 4797, Sales of Business Property
14
Internal Revenue Service. Instructions for Form 4797 (2025)
15
Internal Revenue Service. Topic No. 705, Installment Sales
16
Internal Revenue Service. Like-Kind Exchanges Under IRC Section 1031
17
Internal Revenue Service. Instructions for Form 8824 (2025)
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Internal Revenue Service. What If I Sell My Home for a Loss?
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Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent
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Internal Revenue Service. Instructions for Schedule D (Form 1041)