You can exclude up to $250,000 of the gain on the sale of your main home if all of the following are true.
* You meet the ownership test.
* You meet the use test.
* During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home.
If you are married and file joint return, then you can together exclude profit up to $500,000 if you meet the requirements. Any loss on the sale of your main home cannot be deducted.
Ownership and Use Tests
During the 5-year period ending on the date of the sale, you must have: Owned the home for at least 2 years (the ownership test), and lived in the home as your main home for at least 2 years (the use test)."
If you can exclude the profit, then you don't need to report the sale. However, if you do not qualify to exclude all of the gain or you choose not to exclude the gain, then you must report the entire gain realized on Schedule D (Form 1040). If you qualify for an exclusion, show it on the line directly below the line on which you report the gain. Write on the line "Section 121 exclusion."
Ownership and use tests met at different times
You can meet the ownership and use tests during different 2-year periods. However, you must meet both tests during the 5-year period ending on the date of the sale.
Special rules for joint returns
You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true.
*You are married and file a joint return for the year.
* Either you or your spouse meets the ownership test.
* Both you and your spouse meet the use test.
* During the 2-year period ending on the date of the sale, neither you nor your spouse excluded gain from the sale of another home.
Business Use or Rental of Home
If you meet the ownership and use tests, you can exclude the gain from the sale of a home that you have used to produce rental income. However, you cannot exclude the part of gain equal to the depreciation claimed or could have claimed for renting the house. That is if you never claimed any depreciated on the rental property, you will still need to calculate the depreciation amount and you will report the amount as profit from the sale.
Reduced Maximum Exclusion
In certain situations you can still claim an exclusion, but the maximum amount of gain that you can exclude is reduced if you did not meet ownership or use test because of following reasons:
1. A change of place of employment,
2. Health, or
3. Unforeseen circumstances.
List of Articles
1. Filing Status for Married
2. Filing Status: Head of Household
Exemptions for Dependents
1. Requirements for claiming a dependent
2. Child of separated or divorced parents
1. Filing Requirement for a Dependent
1. W2 vs 1099-Misc: Employee vs Independent Contractor
2. Tax Filing by Self Employed Sole Proprietor or Independent
3. Filing W4 Employee’s Withholding Allowance Certificate
Your Foreign Income
1. U.S. Citizen or Resident with Foreign Income
2. Foreign Bank and Financial Accounts
Income Adjustment and deductions
1. Moving Expenses
2. Itemized deductions
3. Student Loan Interest Deductions
Income Adjustments -- Retirement Plans
1. Trad IRA and Roth IRA
2. Elective Deferrals 401(k) Plans
Status of Your Tax Refund
1. When will I get my tax refund?
U.S. Gift tax and Inheritance Tax
1. The U.S. Gift Tax
2. Tax on Inheritances
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