7 Tax Facts for Selling Your Home

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Tax Fact #1	Tax Fact #2	Tax Fact #3	Tax Fact #4	Tax Fact #5	Tax Fact #6	Tax Fact #7

Tax Fact #1
Single homeowners can exclude the entire gain on the sale of a home up to $250,000.
Married owners can exclude $500,000. þ if they file a joint return for the year, þ either spouse meets the ownership test, þ both meet the use test, þ and neither spouse is excluding the gain from the sale þ of another home after May 6, 1997
Tax Fact #2
All homeowners must satisfy three tests.
Ownership Test The ownership test means the seller owned the home for at least two years of the five-year period before the closing date. Use Test The use test means the seller used the property as a principal residence for two years of that five-year period. Waiting Period Test The waiting period test means the exclusion wasn't used during the preceding two-year period. Further, sellers are not required to purchase a replacement residence, as they were under the old tax law.
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Tax Fact #3
There is no limit to the number of times the exclusion will apply. There is no cumulative feature. For example, a married seller may exclude up to $500,000 of gain on each home sale over a lifetime provided all other requirements are met.
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Tax Fact #4
Since January 1, 1998, gains from all capital assets held for more than 12 months are taxed at the rate of 20 percent, or 10 percent for taxpayers in the 15 percent bracket. If sellers qualify for the exclusion, the first $250,000 or $500,000 of the gain on the sale isn't taxable. Any gain beyond the $250,000/$500,000 is taxed at these capital gains rates and not at the higher, ordinary income tax rates.
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Tax Fact #5
Can job transferees who must sell their house in less than the two-year period exclude any of the gain? Yes. They can claim a percentage equal to the percentage of the two year requirement they have satisfied. So if they owned and used the property for only six months, they'd be entitled to a 25 percent exclusion (six months is 25 percent of two years) of either the $250,000 or $500,000, depending on their situation.
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Tax Fact #6
Are there other situations where a reduced exclusion is allowed? Yes, Owners who sell because of a change in health are treated the same as job transferees. These sellers should see their tax consultant.
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Tax Fact #7
Owners of a rental property or a home formerly used as a principal residence-can qualify for the exclusion even if they no longer live there on the sale date. That is, provided they meet the ownership, use, and waiting period tests. Also, owners of rental property can move into their property for two years, convert the rental into a principal residence, and be eligible for the exclusion.
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