Deducting Your Dwelling

Last year, we spent as much time talking about the love saga of Brad Pitt and Angelina Jolie as we did the housing market.

The big difference, though, is that Brad and Angelina probably don't stay up nights worrying about how they're going to make their next mortgage payment. The rest of us do.

And to make matters worse, if you bought, sold or refinanced a home in 2005, that whole stressful situation will again rear its ugly head this April when you have to deal with the tax consequences. (Again, I doubt the Jolie-Pitts have this problem.)

So for us Average Joes, here's what you need to know.

Sold!

If you sold a home in 2005 and didn't make money on it, there better be a good reason. Even money pits were getting into bidding wars. So we're going to presume you're sitting on some sort of gain.

The home-sale exclusion rules say that you won't owe tax on any gain up to $250,000 as a single person and $500,000 as a married couple, presuming you lived in the house as your primary home for two of the last five years.

But the market was nutty last year. Some folks were blessed with big gains. It's not far-fetched for a single guy to have purchased a $1 million Manhattan apartment three years ago, only to have flipped it for $1.3 million last year.

So now what? Well, first he gets the $250,000 freebie. He will then owe tax on the extra $50,000. He'll need to report it on Schedule D - Capital Gains and Losses, just like a stock sale.

Overall, though, there's a big difference between stock sales and housing claims. "You can't claim a loss on your tax return for a house," says Mark Luscombe, a principal federal tax analyst with CCH Inc., a provider of tax and business-law information.