Publication 17
taxmap/pub17/p17-082.htm#en_us_publink1000172428You may qualify to exclude from your income all or part of any
gain from the sale of your main home. This means that, if you qualify, you will
not have to pay tax on the gain up to the limit described under
Maximum Exclusion, next. To qualify, you must meet the
ownership and use tests described later.
You can choose not to take the exclusion by including the gain
from the sale in your gross income on your tax return for the year of the sale.
You can use Worksheet 2 in Publication 523 to figure the amount
of your exclusion and your taxable gain, if any.
 | If you have any taxable gain from the sale of your home,
you may have to increase your withholding or make estimated tax payments. See
Publication 505, Tax Withholding and Estimated Tax. |
taxmap/pub17/p17-082.htm#en_us_publink1000172431You 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.
You may be able to exclude up to $500,000 of the gain on the
sale of your main home if you are married and file a joint return and meet the
requirements listed in the discussion of the special rules for joint returns,
later, under
Married Persons.
To claim the exclusion, you must meet the ownership and use tests.
This means that 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 owned and lived in the property as your main home for
less than 2 years, you can still claim an exclusion in some cases. The maximum
amount you may be able to exclude will be reduced. See
Reduced Maximum Exclusion, later.
Example 1—home owned and occupied for at least 2 years.(p109)
Amanda bought and moved into her main home in September 2007.
She sold the home at a gain on September 15, 2010. During the 5-year period
ending on the date of sale (September 16, 2005–September 15, 2010), she
owned and lived in the home for more than 2 years. She meets the ownership and
use tests.
taxmap/pub17/p17-082.htm#en_us_publink1000172436Example 2—ownership test met but use test not met.(p109)
Dan bought a home in 2005. After living in it for 6 months, he
moved out. He never lived in the home again and sold it at a gain on June 28,
2010. He owned the home during the entire 5-year period ending on the date of
sale (June 29, 2005–June 28, 2010). However, he did not live in it for the
required 2 years. He meets the ownership test but not the use test. He cannot
exclude any part of his gain on the sale unless he qualified for a reduced
maximum exclusion (explained later).
taxmap/pub17/p17-082.htm#en_us_publink1000172437The required 2 years of ownership and use during the 5-year period
ending on the date of the sale do not have to be continuous nor do they have to
occur at the same time.
You meet the tests if you can show that you owned and lived in the property as
your main home for either 24 full months or 730 days (365 × 2) during the
5-year period ending on the date of sale.
taxmap/pub17/p17-082.htm#en_us_publink1000172438Short temporary absences for vacations or other seasonal absences,
even if you rent out the property during the absences, are counted as periods of
use. The following examples assume that the reduced maximum exclusion (discussed
later) does not apply to the sales.
taxmap/pub17/p17-082.htm#en_us_publink1000172439David Johnson, who is single, bought and moved into his home
on February 1, 2008. Each year during 2008 and 2009, David left his home for a
2-month summer vacation. David sold the house on March 1, 2010. Although the
total time David used his home is less than 2 years (21 months), he may exclude
any gain up to $250,000. The 2-month vacations are short temporary absences and
are counted as periods of use in determining whether David used the home for the
required 2 years.
taxmap/pub17/p17-082.htm#en_us_publink1000172440Professor Paul Beard, who is single, bought and moved into a
house on August 28, 2007. He lived in it as his main home continuously until
January 5, 2009, when he went abroad for a 1-year sabbatical leave. On February
6, 2010, 1 month after returning from the leave, Paul sold the house at a gain.
Because his leave was not a short temporary absence, he cannot include the
period of leave to meet the 2-year use test. He cannot exclude any part of his
gain, because he did not use the residence for the required 2 years.
taxmap/pub17/p17-082.htm#en_us_publink1000172441You 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.
taxmap/pub17/p17-082.htm#en_us_publink1000172442In 2000, Helen Jones lived in a rented apartment. The apartment
building was later converted to condominiums, and she bought her same apartment
on December 3, 2007. In 2008, Helen became ill and on April 14 of that year she
moved to her daughter's home. On July 12, 2010, while still living in her
daughter's home, she sold her condominium.
Helen can exclude gain on the sale of her condominium because
she met the ownership and use tests during the 5-year period from July 13, 2005,
to July 12, 2010, the date she sold the condominium. She owned her condominium
from December 3, 2007, to July 12, 2010 (more than 2 years). She lived in the
property from July 13, 2005 (the beginning of the 5-year period), to April 14,
2008 (more than 2 years).
The time Helen lived in her daughter's home during the 5-year
period can be counted toward her period of ownership, and the time she lived in
her rented apartment during the 5-year period can be counted toward her period
of use.
taxmap/pub17/p17-082.htm#en_us_publink1000172443If you sold stock as a tenant-stockholder in a cooperative housing
corporation, the ownership and use tests are met if, during the 5-year period
ending on the date of sale, you:
- Owned the stock for at least 2 years, and
- Lived in the house or apartment that the stock entitles you
to occupy as your main home for at least 2 years.
The following sections contain exceptions to the ownership and
use tests for certain taxpayers.
taxmap/pub17/p17-082.htm#en_us_publink1000172445There is an exception to the use test if, during the 5-year period
before the sale of your home:
- You become physically or mentally unable to care for yourself,
and
- You owned and lived in your home as your main home for a total
of at least 1 year.
Under this exception, you are considered to live in your home
during any time that you own the home and live in a facility (including a
nursing home) licensed by a state or political subdivision to care for persons
in your condition.
If you meet this exception to the use test, you still have to
meet the 2-out-of-5-year ownership test to claim the exclusion.
taxmap/pub17/p17-082.htm#en_us_publink1000172446For the ownership and use tests, you add the time you owned and
lived in a previous home that was destroyed or condemned to the time you owned
and lived in the replacement home on whose sale you wish to exclude gain. This
rule applies if any part of the basis of the home you sold depended on the basis
of the destroyed or condemned home. Otherwise, you must have owned and lived in
the same home for 2 of the 5 years before the sale to qualify for the exclusion.
taxmap/pub17/p17-082.htm#en_us_publink1000172447You 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 uniformed services or Foreign Service of the
United States, as an employee of the intelligence community, or as an employee
or volunteer of the Peace Corps. 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.
If this helps you qualify to exclude gain, you can choose to
have the 5-year test period suspended by filing a return for the year of sale
that does not include the gain.
taxmap/pub17/p17-082.htm#en_us_publink1000172448David bought and moved into a home in 2002. 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 2010.
To meet the use test, David chooses to suspend the 5-year test period for the 6
years he was on qualified 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 qualified 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/pub17/p17-082.htm#en_us_publink1000172449The period of suspension cannot last more than 10 years. Together,
the 10-year suspension period and the 5-year test period can be as long as, but
no more than, 15 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.
For more information about the suspension of the 5-year test
period, see
Members of the uniformed services or Foreign Service, employees
of the intelligence community, or employees or volunteers of the Peace Corps in Publication 523.
taxmap/pub17/p17-082.htm#en_us_publink1000236179In most cases, gain from the sale or exchange of your main home
will not qualify for the exclusion to the extent that the gains are allocated to
periods of nonqualified use. Nonqualified use is any period after December 31,
2008, during which the property is not used as the main home.
The gain resulting from the sale of the property is allocated
between qualified and nonqualified use periods based on the amount of time the
property was held for qualified and nonqualified use. Gain from the sale or
exchange of a main home allocable to periods of qualified use will continue to
qualify for the exclusion for the sale of your main home. Gain from the sale or
exchange of property allocable to nonqualified use will not qualify for the
exclusion.
Gain is in most cases allocated to periods of nonqualified use
based on the ratio which: (1) the aggregate periods of nonqualified use during
the period the property was owned by you over (2) the total period the property
was owned by you. You do not incorporate any period before 2009 for the
aggregate periods of nonqualified use. Certain exceptions apply. For details,
see Publication 523.
taxmap/pub17/p17-082.htm#en_us_publink1000172450If you and your spouse file a joint return for the year of sale
and one spouse meets the ownership and use test, you can exclude up to $250,000
of the gain. (But see
Special rules for joint returns, next.)
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.
If either spouse does not satisfy all these requirements, the
maximum exclusion that can be claimed by the couple is the total of the maximum
exclusions that each spouse would qualify for if not married and the amounts
were figured separately. For this purpose, each spouse is treated as owning the
property during the period that either spouse owned the property.
Example 1—one spouse sells a home.(p110)
Emily sells her home in June 2010. She marries Jamie later in
the year. She meets the ownership and use tests, but Jamie does not. Emily can
exclude up to $250,000 of gain on a separate or joint return for 2010. The
$500,000 maximum exclusion for certain joint returns does not apply because
Jamie does not meet the use test.
taxmap/pub17/p17-082.htm#en_us_publink1000172454Example 2—each spouse sells a home.(p110)
The facts are the same as in
Example 1
except that Jamie also sells a home in 2010 before he marries Emily. He meets
the ownership and use tests on his home, but Emily does not. Emily and Jamie can
each exclude up to $250,000 of gain from the sale of their individual homes. The
$500,000 maximum exclusion for certain joint returns does not apply because
Emily and Jamie do not jointly meet the use test for the same home.
If your spouse died and you did not remarry before the date of
sale, you are considered to have owned and lived in the property as your main
home during any period of time when your spouse owned and lived in it as a main
home.
If you meet all of the following requirements, you may qualify
to exclude up to $500,000 of any gain from the sale or exchange of your main
home.
- The sale or exchange took place after 2008.
- The sale or exchange took place no more than 2 years after
the date of death of your spouse.
- You have not remarried.
- You and your spouse met the use test at the time of your spouse's
death.
- You or your spouse met the ownership test at the time of your
spouse's death.
- Neither you nor your spouse excluded gain from the sale of
another home during the last 2 years.
Harry has owned and used a house as his main home since 2007.
Harry and Wilma marry on July 1, 2010, and from that date they use Harry's house
as their main home. Harry died on August 15, 2010, and Wilma inherited the
property. Wilma sold the property on September 1, 2010, at which time she had
not remarried. Although Wilma owned and used the house for less than 2 years,
Wilma is considered to have satisfied the ownership and use tests because her
period of ownership and use includes the period that Harry owned and used the
property before death.
taxmap/pub17/p17-082.htm#en_us_publink1000172457If your home was transferred to you by your spouse (or former
spouse if the transfer was incident to divorce), you are considered to have
owned it during any period of time when your spouse owned it.
taxmap/pub17/p17-082.htm#en_us_publink1000172458You are considered to have used property as your main home during
any period when:
- You owned it, and
- Your spouse or former spouse is allowed to live in it under
a divorce or separation instrument and uses it as his or her main home.
If you fail to meet the requirements to qualify for the $250,000
or $500,000 exclusion, you may still qualify for a reduced exclusion. This
applies to those who:
- Fail to meet the ownership and use tests, or
- Have used the exclusion within 2 years of selling their current
home.
.
In both cases, to qualify for a reduced exclusion, the sale of
your main home must be due to one of the following reasons.
- A change in place of employment.
- Health.
- Unforeseen circumstances.
The sale of your main home is because of an unforeseen circumstance
if your primary reason for the sale is the occurrence of an event that you could
not reasonably have anticipated before buying and occupying your main home.
See Publication 523 for more information and to use Worksheet
3 to figure your reduced maximum exclusion.
Previous Page |
Table of Contents |
Index |
Next Page
