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SALE OF PRINCIPAL RESIDENCEThis exclusion replaces the previous deferral-of-gain rule that required taxpayers to purchase a replacement home within certain time and price limits. It also replaces the once-in-a-lifetime exclusion of up to $125,000 of gain in a home sale for qualifying taxpayers age 55 and older.
Under current rules, a seller of any age, who has owned and used the home as a principal residence for at least two of the five years preceding the sale, may exclude from taxation up to $250,000 of profit, if single, and up to $500,000 if married filing jointly. Generally, the exclusion may be used only once every two years. The law provides that married individuals may exclude up to $500,000 of profits if: · Either spouse owned the home for at least two of the five years before the sale · Both spouses used the home as the principal residence for at least two of the five years before the sale, and · Neither spouse is ineligible for the exclusion because of the once-every-two-year rule, the other spouse may still claim the exclusion if he or she qualifies. However, the exclusion then cannot exceed $250,000.
The law does contain some relief for those taxpayers who cannot meet the ownership and use rules or who have already excluded gain on a home sale within the two-year limit. If the failure to meet either rule is due to a job change, circumstances, a partial exclusion may be available. The partial exclusion is calculated based on the fraction of the two years that the requirements were met. |
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