When you sell your primary residence, you may qualify to exclude the capital gain from your income- up to $250,000 if you are single and up to $500,000 if you are married. This tax-free gain applies to all types of real estate.
What types of real estate qualify for the home sale exclusion?
The real estate can be condos, apartments, houses, mobile homes fixed to land, and co-ops.
There are no limits to the number of times you may use the exclusion in your lifetime, but it may not be done more than once every two years.
To qualify for this exclusion, you must own and occupy the home as your principal residence for at least 2 years prior to selling.
You do not need to own and occupy the home at the same time to meet the requirements. If within 5 years of selling, you occupied the home for two years and you owned the home for two years, you have met the requirement. An example of this would be a rental that you lived in for two years before purchasing, then owned for up to three more years before selling (either occupying yourself or as a rental).
To qualify for the $500,000 exclusion, married couples must meet the following criteria --
- Married and file jointly.
- You both meet the use test for the property -- meaning you've lived in the property as your primary residence for 2 of the last 5 years.
- At least one of you meets the ownership requirement.
- Neither spouse has excluded gain from the sale of another home in the previous two years.
- **If a spouse dies and sale occurs within 2 years of death and all above criteria are met, the full $500,000 gain is awarded.
If the above are not met, the exclusion is calculated as if filing separately for up to $250,000. Unmarried joint owners would also file independently for up to $250,000 of tax-free gain.
There Are Exceptions, including these:
If you don't meet the ownership and use test, but sell the home due to a change in employment where your new employer is more than 50 miles from the home, you may be able to qualify for a reduced exclusion with an exception.
If you don't meet the use test because of being moved into a nursing home, the IRS lowers the amount of time required to own and live in the home to one of the last five years. Additionally, time spent in the nursing home is calculated toward the use requirement.
For comprehensive and detailed insights regarding the home sale exclusion, look no further than the highly experienced team of tax experts at Peter Witts CPA PC. Our knowledgeable professionals possess an in-depth understanding of the intricacies surrounding this crucial aspect of tax regulations. Whether you seek clarification on eligibility criteria, calculation methods, or any other related queries, our experts are equipped with the expertise to provide you with accurate and up-to-date information. With Peter Witts CPA PC, you can rely on our trusted guidance to navigate the complexities of the home sale exclusion and optimize your tax benefits.
I’m Kristin, the PWCPA PC Customer Success Specialist. For more information about this topic, or any other, you can always reach me through our customer ticketing system.
