The profits from selling real estate are fully taxable as capital gain, unless the property sold qualifies as your primary residence.
In addition, the profits from selling your house are recorded on Schedule D if they exceed the maximum allowed capital gain for a primary residence.
This means that generally, the sale of your primary residence is not considered a capital gain, unless you make enough money on the sale to surpass the IRS "profit threshold".
If the sale of your house makes a profit that exceeds $250,000 for unmarried taxpayers or $500,000 for married taxpayers, then you must claim a portion of the profit as a capital gain.
Your profit is figured by taking the amount you sold the house for and reducing it by the cost of the sale and the cost of the house. These costs can include:
- real estate commission
- title closing costs
- advertising costs
- attorney fees
- the original amount you paid for your house
- closing costs & attorney fees at the time of your purchase
- cost of any improvements you made to your house
If this amount, your profit, is over the maximum excludable amount you must claim capital gains.
To claim the excess profit on your Schedule D, subtract either $250,000 or $500,000 (whichever corresponds to your filing status) from your profit and enter this number along with the date of purchase and sale and description on Schedule D in the appropriate long-terms capital gains section.
Unfortunately, if you sold your house at a loss, you are not entitled to a deduction. You might, however, be able to deduct interest points that you paid in the past but did not claim.