Tuesday, June 18, 2013
A: If you sell your primary residence, you may be able to exclude up to $250,000 of gain – $500,000 for married couples – from your federal tax return. To claim the exclusion, the IRS says your home must have been owned by you and used as your main home for a period of at least two out of the five years prior to its sale.
You also must not have excluded gain on another home sold during the two years before the current sale. However, special rules apply for members of the armed, uniformed and foreign services and their families in calculating the 5-year period.
If you do not meet the ownership and use tests, you may use a reduced maximum exclusion amount. But only if you sold your home due to health, a change in place of employment, or unforeseen circumstances.
If you can exclude all the gain from the sale of your home, you do not report it on your federal tax return. If you cannot exclude all the gain, or you choose not to, you must use Schedule D of Form 1040, Capital Gains or Losses, to report the total gain and claim the exclusion you qualify for.
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