| Most home sellers are very excited on closing day. | | | | sold as your principal residence for any 2 years out of |
| They anticipate seeing a very large check, usually the | | | | the last 5 years. |
| largest check they will see for any type of possession | | | | 3. Timing test: You must not have excluded gain from |
| or investment they have sold. But, come the following | | | | the sale of another home within the last 2 years. |
| April 15th, their accountant will be asking whether there | | | | If you meet all three tests, you can exclude from your |
| are any taxes that must be paid on the profit. | | | | taxes up to $250,000 of gain, if you are single, or up to |
| When the 1997 Tax Act passed, the home sale rules | | | | $500,000 of gain, if you are married, filing jointly. If only 1 |
| were completely changed. Many home sales that | | | | spouse meets the Ownership test, the full exclusion is |
| were not taxed under the old law may now be | | | | allowed, as long as both spouses meet the Use test. |
| subject to tax. But many more people who might have | | | | Or if 1 spouse has done a tax-free sale within the last |
| paid taxes on the profits of their home sale under the | | | | 2 years, the other spouse may sell and exclude |
| old rules do not pay anything under the current law. | | | | $250,000 of gain. If 2 non-married persons own a |
| There are three tests to meet in order to have the | | | | house together and both live there, each can exclude |
| profits from your home sale excluded from income | | | | up to $250,000 of gain. Even if you don't meet the Use |
| taxes: | | | | test because you did not live in the home for at least 2 |
| 1. Use test: You must have lived in your home for any | | | | years, you may still qualify for a partial exclusion. If you |
| two years out of the last 5 years. | | | | own a second (vacation) home, this tax law will not |
| 2. Ownership test: You must have used the house you | | | | apply, because you will not meet the Ownership test. |