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IRS.gov Website
Publication 554
taxmap/pubs/p554-007.htm#en_us_publink100043628

Sale of Home(p17)

rule
You may be able to exclude from income any gain up to $250,000 ($500,000 on a joint return in most cases) on the sale of your main home. Generally, if you can exclude all of the gain, you do not need to report the sale on your tax return. 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.
taxmap/pubs/p554-007.htm#en_us_publink100043629

Main home.(p17)

rule
Usually, your main home is the home you live in most of the time and can be a:
taxmap/pubs/p554-007.htm#en_us_publink1000256504

Recapture of 2008 first-time homebuyer credit.(p18)

rule
If you claimed the 2008 first-time homebuyer credit when you purchased your home, you may have to recapture all or a portion of the amount you claimed. The 2008 first-time homebuyer credit is intended to be repaid by the taxpayer over a period of 15 years, starting in 2010. If your home ceases to be your main home before the 15-year period has lapsed, you must include all remaining annual installments as additional tax on the tax return for that year. Your home ceases to be your main home if you sell the home, convert the home to business or rental property use, or the home is destroyed, condemned, or disposed under the threat of condemnation. In the event of a sale or other conversion you will need to file Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, with your annual tax return.
In the case of the sale of the principal residence to a person who is not related to the taxpayer, the recapture shall not exceed the amount of gain, if any, on such sale.
taxmap/pubs/p554-007.htm#en_us_publink1000256505

Exceptions.(p18)

rule
If one of the following applies, you do not have to recapture the 2008 first-time homebuyer credit.
Deposit
For details on claiming and repaying or recapturing the credit, see Publication 523, Selling Your Home, and see also Form 5405 and its Instructions.
taxmap/pubs/p554-007.htm#en_us_publink1000256508

Recapture of the 2009 or 2010 first-time homebuyer credit.(p18)

rule
If you claimed the 2009 or 2010 first-time homebuyer credit when you purchased your home, the credit is not required to be repaid unless your home ceases to be your main home within 36 months of the date of purchase. If you sell the home to someone who is not related to you, the repayment in the year of sale is limited to the amount of gain on the sale. The amount of the credit does not have to be repaid. However, when figuring the gain, reduce the adjusted basis by the amount of the credit. See the Instructions for Form 5405 for additional exceptions that may apply.
taxmap/pubs/p554-007.htm#en_us_publink1000256509
Exception.(p18)
Members of the uniformed services or Foreign Service and employees of the intelligence community do not have to repay the credit, if you sell the home or the home ceases to be your main home because you received Government orders to serve on qualified official extended duty.
taxmap/pubs/p554-007.htm#en_us_publink100043630

Maximum Amount of Exclusion(p18)

rule
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 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.
taxmap/pubs/p554-007.htm#en_us_publink100043631

Ownership and Use Tests(p18)

rule
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:
taxmap/pubs/p554-007.htm#en_us_publink100043632

Exception to ownership and use tests.(p18)

rule
If you owned and lived in the property as your main home for less than 2 years, you still can claim an exclusion in some cases. Generally, you must have sold the home due to a change in place of employment, health, or unforeseen circumstances. The maximum amount you can exclude will be reduced. See Publication 523 for more information.
taxmap/pubs/p554-007.htm#en_us_publink100043633

Exception to use test for individuals with a disability.(p18)

rule
There is an exception to the use test if, during the 5-year period before the sale of your home: 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) that is 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/pubs/p554-007.htm#en_us_publink100043634

Exception to ownership test for property acquired in a like-kind exchange.(p19)

rule
You must have owned your main home for at least 5 years to qualify for the exclusion if you acquired your main home in a like-kind exchange. This special 5-year ownership rule continues to apply to a home you acquired in a like-kind exchange and gave to another person. A like-kind exchange is an exchange of property held for productive use in a trade or business or for investment. See Publication 523 for more information.
taxmap/pubs/p554-007.htm#en_us_publink1000240548

Period of nonqualified use.(p19)

rule
Generally, the gain from the sale or exchange of your main home will not qualify for the exclusion to the extent that the gain is 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. See Publication 523 for more information.
taxmap/pubs/p554-007.htm#en_us_publink100043635

Married Persons(p19)

rule
In the special situations discussed below, if 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 gain. However, see Special rules for joint returns, next.
taxmap/pubs/p554-007.htm#en_us_publink100043636

Special rules for joint returns.(p19)

rule
You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true. 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.
taxmap/pubs/p554-007.htm#en_us_publink1000139168

Sale of home by surviving spouse.(p19)

rule
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 in 2010.
taxmap/pubs/p554-007.htm#en_us_publink100043639

Home transferred from spouse.(p19)

rule
If 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/pubs/p554-007.htm#en_us_publink100043640

Use of home after divorce.(p19)

rule
You are considered to have used property as your main home during any period when:
taxmap/pubs/p554-007.htm#en_us_publink100043641

Business Use or Rental of Home(p19)

rule
You may be able to exclude gain from the sale of a home that you have used for business or to produce rental income if you meet the ownership and use tests. See Publication 523 for more information.
taxmap/pubs/p554-007.htm#en_us_publink100043642

Depreciation after May 6, 1997.(p19)

rule
If you were entitled to take depreciation deductions because you used your home for business purposes or as rental property, you cannot exclude the part of your gain equal to any depreciation allowed or allowable as a deduction for periods after May 6, 1997. If you can show by adequate records or other evidence that the depreciation allowed was less than the amount allowable, then you may limit the amount of gain recognized to the deprecation allowed. See Publication 523 for more information.
taxmap/pubs/p554-007.htm#en_us_publink100043643

Reporting the Sale(p19)

rule
Do not report the 2010 sale of your main home on your tax return unless: If you have any taxable gain on the sale of your main home that cannot be excluded, report the entire gain on Schedule D (Form 1040). If you used your home for business or to produce rental income, you may have to use Form 4797, Sales of Business Property, to report the sale of the business or rental part. See Publication 523 for more information.