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IRS.gov Website
Publication 3
taxmap/pubs/p3-004.htm#en_us_publink1000176229

Sale of Home(p11)

rule
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:
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 2011. 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_publink1000236146

Exception to ownership and use tests.(p12)

rule
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_publink1000236147

5-year test period suspended.(p12)

rule
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_publink1000236148

Example.(p12)

David bought and moved into a home in 2003. 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 2011. 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_publink1000236155
Period of suspension.(p12)
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_publink1000236156
Qualified official extended duty.(p12)
You are on qualified official extended duty if you serve on extended duty either:
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_publink1000236157

Property used for rental or business.(p12)

rule
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_publink1000236161

Nonqualified use.(p12)

rule
If the sale of your main home results in a gain that is allocated to one or more period(s) of nonqualified use, you cannot exclude that gain from your income.
Nonqualified use means any period after 2008 when neither you nor your spouse (or your former spouse) used the property as a main home, with certain exceptions. For example, a period of nonqualified use does not include any period (not to exceed a total of 10 years) during which you or your spouse is serving on qualified official extended duty.
taxmap/pubs/p3-004.htm#en_us_publink1000236158

Loss.(p12)

rule
You cannot deduct a loss from the sale of your main home.
taxmap/pubs/p3-004.htm#en_us_publink1000236160

More information.(p12)

rule
For more information, see Publication 523.