Excluding the Gain
You may qualify to exclude from your income all or part of any gain
from the sale of your main home. This means that, if you qualify, you
will not have to pay tax on the gain up to the limit described under
Maximum Amount of Exclusion, next. To qualify, you must meet the
ownership and use tests described later.
You can choose not to take the exclusion. In that case, you must
include in income your entire gain.
You can use Worksheet 2 to figure the amount of your exclusion
and your taxable gain, if any.
Worksheet 1. Adjusted Basis of Home Sold and Worksheet 2. Gain (or
Loss), Exclusion and Taxable Gain
Maximum Amount of Exclusion
You can exclude the entire gain on the sale of your main home up to:
1.
$250,000, or
2.
$500,000 if all of the following are true.
a.
You are married and file a joint return for the year.
b.
Either you or your spouse meets the ownership test.
c.
Both you and your spouse meet the use test.
d.
During the 2-year period ending on the date of the
sale, neither you nor your spouse excluded gain from the sale of another
home.
Reduced Maximum Exclusion
You can claim an exclusion, but the maximum amount of gain you can
exclude will be reduced, if either of the following is true.
1.
You did not meet the ownership and use tests, but you
sold the home due to:
a.
A change in place of employment,
b.
Health, or
c.
Unforeseen circumstances, to the extent provided in
regulations (as discussed below).
2.
Your exclusion would have been disallowed because of
the rule described in More Than One Home Sold During 2-Year Period,
later, except that you sold the home due to:
a.
A change in place of employment,
b.
Health, or
c.
Unforeseen circumstances, to the extent provided in
regulations (as discussed below).
Use Worksheet 3 to figure your reduced maximum
exclusion.
Unforeseen circumstances. The IRS has not issued regulations
defining unforeseen circumstances. You cannot claim an exclusion based
on unforeseen circumstances until the IRS issues final regulations or
other appropriate guidance.
More Than One Home Sold During 2-Year Period
You cannot exclude gain on the sale of your home if, during the
2-year period ending on the date of the sale, you sold another home at a
gain and excluded all or part of that gain. If you cannot exclude the
gain, you must include it in your income.
However, you can still claim an exclusion if you sold the home due
to:
1.
A change in place of employment,
2.
Health, or
3.
Unforeseen circumstances, to the extent provided in
regulations (as discussed earlier).
The maximum amount you can exclude is reduced. See Reduced
Maximum Exclusion, earlier.
Example 1. In September 1999, Paul and Nadine bought a
new home. In November 1999, they sold their old home at a $40,000 gain.
They had owned and lived in the old home for 4 years. They excluded the
gain on the sale.
On October 1, 2001, Paul and Nadine sold the home they purchased in
September 1999 at a $15,000 gain. The sale was not due to a change in
place of employment or health. Because Paul and Nadine had excluded gain
on the sale of another home within the 2-year period ending on October
1, 2001, they cannot exclude the gain on this sale.
Example 2. The facts are the same as in Example 1
except that Paul and Nadine did not sell the home purchased in September
1999 until December 3, 2001. Because they had not excluded gain on the
sale of another home within the 2-year period ending on December 3,
2001, they can exclude the gain on this sale. |
