|
|
|
|||||||||||
|
How am I taxed if I sell my "main home"? |
|||||||||||||
|
DEFINITION OF MAIN HOME Usually, the home you live in most of the time is your main home and can be a:
EXCLUSION OF GAIN If you have a gain from the sale of your main home, you may be able to exclude from income up to $250,000 of the gain ($500,000, for certain married taxpayers filing a joint return). The exclusion may be allowed each time you sell or exchange your main home, but generally no more frequently than once every two years. To be eligible for the exclusion*, you must meet the "ownership and use tests." You MUST have:
REDUCED EXCLUSION* A "reduced exclusion" applies to taxpayers who do NOT meet the "ownership and use tests" due to a change in health or place of employment. There is also a provision in the law that a reduced exclusion may apply due to "unforeseen circumstances." The sale of a main home will be considered as occurring primarily because of “unforeseen circumstances” if any of the following events occur during the taxpayer’s period of use and ownership of the residence:
Other circumstances may be considered "unforeseen" solely at the discretion of the IRS Commissioner. DEPRECIATION OF MAIN HOME AFTER MAY 6, 1997 If you were entitled to take depreciation deductions because you used your home for business purposes or as a rental property, you CANNOT exclude the part of the gain equal to any depreciation allowed or allowable AFTER May 6, 1997. SALE OF MAIN HOME ACQUIRED IN A LIKE-KIND EXCHANGE Effective for sales or exchanges after October 22, 2004, the exclusion of gain from the sale of a principal residence is inapplicable to property acquired in a like-kind exchange during the five-year period before the sale. Thus, the exclusion of gain will NOT apply if the principal residence was acquired in a like-kind exchange in which any gain was not recognized within the previous five years. THE MILITARY TAX RELIEF ACT OF 2003 (HR3365) (MFTRA) The new law creates a special exception to the "two-out-of-five year rule" for uniformed and foreign service personnel called to active duty away from home. They may elect to suspend the five-year test period. The maximum length of the suspension is 10 years and it may only be made with respect to one property. If the election is made, the five-year period ending on the date of the sale of a principal residence does not include any period up to 10 years during which the serviceman or woman, his or her spouse, is on qualified official extended duty. An election may be revoked at anytime. The new election is available to members of the Armed Forces (Army, Navy, Air Force, Marine Corps, and Coast Guard), Commissioned Corps of the National Oceanic and Atmospheric Administration, Commissioned Corps of the Public Health Service, and the Foreign Service. "Away from home" is defined as “qualified official extended duty” while serving at a duty station that is at least 50 miles from the taxpayer’s principal residence or while residing in government quarters under government orders. “Extended duty” is any period of active duty pursuant to a call or order to such duty for a period in excess of 90 days or for an indefinite time. This special election is retroactive. It is effective for sales made after May 6, 1997. |
|||||||||||||
|
|
|||||||||||||
|
Click here to return to "Frequently Asked Tax Questions" |
|||||||||||||
|
|
|||||||||||||
|
|||||||||||||
