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Ten Key Tax Facts about Home Sales

In most cases, gains from sales are taxable. But did you know that if you sell your home, you may not have to pay taxes? Here are ten facts to keep in mind if you sell your home this year.

  1. Exclusion of Gain.  You may be able to exclude part or all of the gain from the sale of your home. This rule may apply if you meet the eligibility test. Parts of the test involve your ownership and use of the home. You must have owned and used it as your main home for at least two out of the five years before the date of sale.
  2. Exceptions May Apply.  There are exceptions to the ownership, use and other rules. One exception applies to persons with a disability. Another applies to certain members of the military. That rule includes certain government and Peace Corps workers. For more on this topic, seePublication 523, Selling Your Home.
  3. Exclusion Limit.  The most gain you can exclude from tax is $250,000. This limit is $500,000 for joint returns. The Net Investment Income Tax will not apply to the excluded gain.
  4. May Not Need to Report Sale.  If the gain is not taxable, you may not need to report the sale to the IRS on your tax return.
  5. When You Must Report the Sale.  You must report the sale on your tax return if you can’t exclude all or part of the gain. You must report the sale if you choose not to claim the exclusion. That’s also true if you get Form 1099-S, Proceeds From Real Estate Transactions. If you report the sale, you should review the Questions and Answers on the Net Investment Income Taxon IRS.gov.
  6. Exclusion Frequency Limit.  Generally, you may exclude the gain from the sale of your main home only once every two years. Some exceptions may apply to this rule.
  7. Only a Main Home Qualifies.  If you own more than one home, you may only exclude the gain on the sale of your main home. Your main home usually is the home that you live in most of the time.
  8. First-time Homebuyer Credit.  If you claimed the first-time homebuyer credit when you bought the home, special rules apply to the sale. For more on those rules, see Publication 523.
  9. Home Sold at a Loss.  If you sell your main home at a loss, you can’t deduct the loss on your tax return.
  10. Report Your Address Change.  After you sell your home and move, update your address with the IRS. To do this, file Form 8822, Change of Address. You can find the address to send it to in the form’s instructions on page two. If you purchase health insurance through the Health Insurance Marketplace, you should also notify the Marketplace when you move out of the area covered by your current Marketplace plan.

Additional IRS Resources:

  • Publication 5152: Report changes to the Marketplace as they happen English | Spanish

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Higher Contribution Limits Will Apply for FSAs and HSAs in 2022

Many taxpayers will be able to contribute more money to workplace cafeteria plans and other tax-advantaged accounts in 2022. Accounts that will have higher contribution limits in 2022 include medical flexible spending arrangements (FSAs) and health savings accounts (HSAs). For FSAs, the annual contribution limit for most employees will be $2,850 in 2022, a $100 increase over the 2021 limit. The 2022 contribution limit for HSAs will be $3,650 (up from $3,600) for individuals, and $7,300 (up from $7,200) for families.

The IRS also reminds taxpayers that FSAs are generally subject to a “use it or lose it” rule, meaning that the taxpayer forfeits any funds remaining in the account at the end of the year. HSAs typically do not have this restriction, so funds in the account carry over from year to year.

In many cases, employers may allow either a grace period (until March 15) to use up FSA funds from the previous year, or a partial carryover of funds to the next year. The maximum carryover amount from 2022 to 2023 will be $570, up from $550 for 2021-2022. However, under COVID relief legislation enacted by Congress in February 2021, employers may offer their employees a higher 2021-2022 FSA carryover limit, or an extended grace period of up to 12 months.

If you have money remaining in your 2021 FSA, check with your employer’s benefits department about whether you have a carryover or grace period option.

A tax professional can help you determine how to use the increased contribution limits for 2022, and the special 2021 COVID relief rules, to get the most out of your FSA or HSA.