IRS TAX TIP 2004-56
If you sold your main home, you may be able to exclude up to $250,000 of
gain ($500,000 for married taxpayers filing jointly) from your federal tax
return, according to the IRS. This exclusion is allowed each time that you
sell your main home, but generally no more frequently than once every two
years.
To be eligible for this exclusion, 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. The two years may consist of 24 full months or
730 days. Short absences, such as for a summer vacation, count as periods
of use. Longer breaks, such as a one-year sabbatical, do not. You also
must not have excluded gain on another home sold during the two years
before the current sale. Special rules apply to members of the armed,
uniformed and foreign services and their families in calculating the
5-year period.
If you and your spouse file a joint return for the year of the sale, you
can exclude the gain if either of you qualify for the exclusion. But both
of you would have to meet the use test to claim the $500,000 maximum
amount.
If you do not meet the ownership and use tests, you may be allowed to use
a reduced maximum exclusion amount if you sold your home due to health, a
change in place of employment or unforeseen circumstances. Unforeseen
circumstances can include divorce or a disaster resulting in a casualty to
your home, for example.
If you can exclude all the gain from the sale of your home, you do not
report any of that gain on your federal tax return. If you cannot exclude
all the gain from the sale of your home, or you choose not to, use
Schedule D, Form 1040, to report the total gain and claim the exclusion
you qualify for.
For more details and information, get a copy of IRS Publication 523,
"Selling your Home," by calling 1-800-TAX-FORM (1-800-829-3676) or by
downloading it from the IRS Web site at
www.irs.gov. For rules applying to
members of the military, see Publication 3, "Armed Forces Tax Guide."
