You may not have to pay tax on all or part of the gain from the sale of your main home. Usually, your main home is the one you live in most of the time. It can be a:
- Mobile home,
- Cooperative apartment, or
See Publication 523 for more information.
You generally can exclude up to $250,000 of gain ($500,000, in most cases, if married filing a joint return) realized on the sale or exchange of a main home in 2008. The exclusion is allowed each time you sell or exchange a main home, but generally not more than once every 2 years. To be eligible, 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). taxmap/pubs/p3-004.htm#en_us_publink100096009
You can exclude gain, but the maximum amount of gain you can exclude will be reduced if you do not meet the ownership and use tests due to a move to a new permanent duty station.taxmap/pubs/p3-004.htm#en_us_publink100096010
You can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse serve on qualified official extended duty as a member of the Armed Forces. This means that you may be able to meet the 2-year use test even if, because of your service, you did not actually live in your home for at least the required 2 years during the 5-year period ending on the date of sale.taxmap/pubs/p3-004.htm#en_us_publink100096011
David bought and moved into a home in 2000. He lived in it as his main home for 21/2 years. For the next 6 years, he did not live in it because he was on qualified official extended duty with the Army. He then sold the home at a gain in 2008. To meet the use test, David chooses to suspend the 5-year test period for the 6 years he was on qualifying official extended duty. This means he can disregard those 6 years. Therefore, David's 5-year test period consists of the 5 years before he went on qualifying official extended duty. He meets the ownership and use tests because he owned and lived in the home for 21/2 years during this test period.taxmap/pubs/p3-004.htm#en_us_publink100096012
The period of suspension cannot last more than 10 years. You cannot suspend the 5-year period for more than one property at a time. You can revoke your choice to suspend the 5-year period at any time.taxmap/pubs/p3-004.htm#en_us_publink100096013
You are on qualified official extended duty if you serve on extended duty either:
- At a duty station at least 50 miles from your main home, or
- While you live in Government quarters under Government orders.
You are on extended duty when you are called or ordered to active duty for a period of more than 90 days or for an indefinite period.taxmap/pubs/p3-004.htm#en_us_publink100096014
You may be able to exclude your gain from the sale of a home that you have used as a rental property or for business. However, you must meet the ownership and use tests discussed in Publication 523. taxmap/pubs/p3-004.htm#en_us_publink100096015
You cannot deduct a loss from the sale of your main home. taxmap/pubs/p3-004.htm#en_us_publink100096016
For more information on the laws affecting the sale of a home in 2008, see Publication 523.taxmap/pubs/p3-004.htm#en_us_publink100096017
See Rules for Sales Before May 7, 1997
, in the 2004 Publication 3 if you sold your main home at a gain before May 7, 1997, and all three of the following statements are true.
- You postponed the gain.
- The 2-year period you had to replace that home (your replacement period) was suspended while you served in the Armed Forces.
- You have not already reported to the IRS either your purchase of a new home within your replacement period or a taxable gain resulting from the end of your replacement period.
The 2004 Publication 3 is available at www.irs.gov