If you make a profit when you sell your principal residence you can exclude up to $250,000 of gain ($500,000 for married couples) from your income if you meet certain requirements. The full tax break is only available once every two years. During the five-year period ending on the sale date, you must have owned the home and used it as your principal residence for at least two years.
If you are married and file jointly, the full $500,000 exclusion is available if both you and your spouse meet the two-year use requirement and haven’t claimed the exclusion for another sale within the past two years. You don’t necessarily have to own the residence jointly. If you recently married and plan to sell your residence at a gain, don’t rule out the possibility of claiming an exclusion just because your spouse excluded a gain on another sale within the past two years. You can still qualify for an exclusion of up to $250,000 if you meet all the requirements yourself.
Additionally, even if you didn’t meet the requirements for the full gain deduction when you sold your prior residence because you didn’t meet the time requirement, you may be able to receive a prorated deduction.
A taxpayer who fails to meet the ownership and use requirements or the “one-sale-in-two-years” requirement is eligible for a partial gain exclusion if the principal residence was sold or exchanged by reason of:
1. a change in place of employment;
2. health; or
3. unforeseen circumstances.
The following white paper outlines a series of tax laws in regards to homeownership: http://www.dh-cpa.com/client_media/files/pdf/2015RefNL_TaxTipsHomeowner.pdf
Need help analyzing what tax breaks you may be eligible for? Davis and Hodgdon Associates CPAs has been assiting nonprofits, individuals and businesses with tax and accounting services in the Burlington Vermont Metro area for more than 20 years. If you have any questions or concerns please feel free to call 802.878.1963 or email [email protected].