Sale of Personal Residence

For sales of a principal residence on or after August 5, 1997, taxpayers are allowed to exclude from income tax a gain on the sale of their qualifying principal residence, not exceeding $500,000 for those married filing jointly (even if only one owned the house) or $250,000 for any other filing status.

A "qualifying" principal residence is one that you have used as such for at least two of the five years prior to the date of sale. This exclusion from gain cannot be used more often than every two years, starting 5/7/97.

Exceptions

A pro-rated exclusion may be available when you do not meet the two year use requirement OR need to sell a home less than two years after the previous home, due to a job change, health reasons or other "unforseen circumstances" to be defined in future guidance. See a local tax professional for advice if this is your situation.
You cannot exclude any gain that is attributable to the recapture of depreciation allowed or allowable for the period after May 6, 1997. (Prior depreciation doesn't matter.) See "Capital Gains".

Previous rental property : As long as the property qualifies as your principal residence under the "2 out of 5 year" rule above, rental activity during the other 3 years doesn't matter, including at the time of sale. Note that depreciation allowed only after 5/6/97 must be recaptured as income.

[Back] [Home] [Up] [Next]

Disclaimer
We do not offer legal advice. All information provided on this website is for informational purposes only and is not a substitute for proper legal advice. If you have legal questions, we recommend that you seek the advice of legal professionals.

Tax Disclaimer: To ensure compliance with IRS Rules, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein.