Tax Benefits
Sale of a Principal Residence
The Internal Revenue Code allows qualifying persons an exclusion on the gain from their personal residence up to $500,000 for married taxpayers filing a joint return and $250,000 for single return filers. This can be a source of cash for the individual to use for retirement, investing or any purpose.
There is no limit to how many times a taxpayer can do this as long as the minimum use requirement is met. Homeowners have an option to trade up or trade down on a tax-free basis.
Most homeowners don't take full advantage of all the adjustment in order to keep the gain as low as possible. If the truth were known, most people's records are so poor that when the time comes to recognize the gain, the calculations probably have to be based on estimates instead of actual numbers.
Rules for Exclusion
- Effective date for sales of principal residence on or after May, 1997.
- Ownership and use must have been the principal residence for two out of the five preceding years. There is a formula to provide partial exclusion for those who cannot satisfy the two year requirement.
- Gain in excess of $500,000 or $250,000 amount is taxable at capital gains rate.
- Exclusion does not apply to vacation or second home properties.
- There is no requirement to rollover proceeds and reinvest them into another home.
For additional information, a taxpayer may see the IRS Publication or see their tax professional. Form 2119 must be filed with the taxpayer's regular income tax return in the year of sale.
For more information, contact Frank Armstrong
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