Page 19 - Selling Your Home User Guide

9:00 - 12-Dec-2022
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Fileid: … tions/p523/2022/a/xml/cycle04/source
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
past tax returns, compare the size of your business or is the gain or loss related to the home portion of the prop-
rental space to the size of the whole property and express erty you sold.
this as a percentage. For example, if you have a building Review the results of your “Home” and “Business”
with three equal-sized stories, and you live in the top two worksheets to determine your next step. When you have
stories and use the ground floor for a store, then you are completed each worksheet, you will know whether you
using /3 of the property and your business percentage is have a gain or loss on each part of your property. It is pos-
1
33.3%. sible to have a gain on both parts, a loss on both parts, or
For each number on your “Total” worksheet, figure the a gain on one part and a loss on the other. See Table 2 to
business-related portion of that number and enter it on determine your next steps.
your “Business or Rental” worksheet. You may use differ-
ent methods to determine the business portion of different
numbers. Here are the three possible methods and the
circumstances under which each method applies. How Much Is Taxable?
• Dollar-amount method. Where a figure consists of Review of the Eligibility Test. Generally, your home
specific dollar amounts that relate to either the resi- sale qualifies for the maximum exclusion, if all of the fol-
dence portion or the business portion of the property, lowing conditions are true.
the figure must be broken down by these dollar
amounts. For example, if the figure for improvements • You didn’t acquire the property through a like-kind ex-
to the property was $100,000, and all of that applied to change in the past 5 years.
the residence portion, then the business portion of the • You aren’t subject to the expatriate tax.
improvements would be zero.
• “100% rule” for depreciation. The first item under • You owned the home for 2 of the last 5 years and lived
in the home for 2 (1 if you become disabled) of the last
line 5a in Worksheet 2 is a business depreciation item. 5 years leading up to the date of the sale.*
Any figure for this item is 100% a business figure.
• Percentage method. Where a figure applies to the • For the 2 years before the date of the current sale, you
didn't sell another home on which you claimed the ex-
property as a whole (such as the sale price), the busi- clusion.
ness or rental portion is the figure multiplied by the
business portion percentage you calculated earlier. • You didn’t use the property as a vacation or rental
Use the percentage method for all items that don’t re- home after 2008, or you didn’t use a portion of the
quire the dollar-amount or depreciation methods. home, outside of the living area, for business or rental
The total you get on line 7 on your “Business” copy of purposes.
Worksheet 2 is the gain or loss related to the business or • The sale doesn’t involve the transfer of vacant land or
rental portion of the property you sold. a remainder interest.**
Next, complete your “Home” worksheet. For each num- *If this condition isn’t met, your home sale may qualify
ber, take the number from your “Total” worksheet, subtract for a partial exclusion. The sale must involve one of the
the number from your “Business or Rental” worksheet, following events experienced by you, your spouse, or a
and enter the result in your “Home” worksheet (for exam- co-owner: a work-related move, a health-related move, a
ple, subtract the number on line 1f of the "Business or death, a divorce, a pregnancy with multiple children, a
Rental" worksheet from the number on line 1f of your "To- change in employment status, a change in unemployment
tal" worksheet), and enter the result on your "Home" work- compensation eligibility, or other unusual event.
sheet. **The transfer of vacant land or of a remainder interest
Now figure the totals on your “Home” worksheet. The may qualify for the maximum exclusion, but special rules
total you get on line 7 on the “Home” copy of Worksheet 2 apply in those situations.

Table 2. Does Your Home or Business Show a Gain or a Loss?

IF... THEN...
your “Home” worksheet follow the instructions at the end of line 7, under Worksheet 2 for “If the number is negative.”
shows a loss,
your “Home” worksheet see How Much Is Taxable? and Worksheet 3 to find out how much of the gain on your “Home”
shows a gain, worksheet is taxable.
your “Business” DON’T follow the instructions at the end of line 7, under Worksheet 2. Instead, report the loss from
worksheet shows a loss, your “Business” worksheet on Form 4797, Sales of Business Property. Note. Your loss may be
limited. See the Instructions for Form 4797.
your “Business” you can’t exclude any of the gain shown on your “Business” worksheet. DON’T follow the instructions
worksheet shows a gain, at the end of line 7, under Worksheet 2. Instead, report the gain from your “Business” worksheet on
Form 4797.

Page 14 Publication 523 (2022)