The Common Law
Sell your home and get a tax break?
It depends (as with many tax issues). There are lots of tax incentives intended to encourage people to own a home. One of the biggest tax breaks offered to home owners can occur at the sale of the home. This is because individuals who have gain from the sale or exchange of their main home may be able to exclude from income all or part of the gain.
This exclusion is up to $250,000 for individuals and $500,000 for married taxpayers filing joint returns. The exclusion may be allowed each time that a person sells his or her main home but generally no more frequently than once every two years.
To qualify for the exclusion of gain for a main home, a person must meet the following ownership and use tests:
Ownership test: Person must have owned the home for at least two years during the five-year period ending on the date of the sale. Use test: Person must have lived in the home as their main home at least two years during the five-year period ending on the date of the sale.
However, if a person fails to meet the ownership and use requirements by reason of a change in place of employment, health, or other unforeseen circumstances, he or she can still exclude the fraction of the $250,000 ($500,000 if married and filing a joint return) equal to the fraction of two years that these requirements are met. For example, someone who lives with his or her spouse in a main home for 18 months and then relocates for job reasons may still be able to exclude up to $375,000 ($500,000 multiplied by 0.75).
In short, it pays to learn the rules and nuances about the potential tax breaks associated with selling your home (there are many not discussed in this column). Anyone interested to learn more about tax benefits related to selling your home, check out IRS Publication 523, Selling Your Home, available at www.irs.gov.
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Marrs, Ellis & Hodge LLP, www.jmehlaw.com.
The material in this column is for informational purposes only. It does not constitute, nor is it a substitute for, legal advice. For advice on your specific facts and circumstances, consult a licensed attorney. You may wish to contact the Lawyer Referral Service of Central Texas, a non-profit public service of the Austin Bar Association, at 512-472-8303 or www.austinlrs.com.