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Taxmap/pubs/p554-008.htm#TXMP531d8060 Sale of Home

Sale of Home

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. If you can exclude all of the gain, you do not need to report the sale on your tax return.

Taxmap/pubs/p554-008.htm#TXMP557ae8a2 Maximum Amount of Exclusion

Exclusion, Maximum Amount

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.

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.

Taxmap/pubs/p554-008.htm#TXMP4e60fb57 Ownership and Use Tests

Ownership and Use Tests

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).

Taxmap/pubs/p554-008.htm#TXMP125a9015 Exception to ownership and use tests.

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, Selling Your Home, for more information.

Taxmap/pubs/p554-008.htm#TXMP58bfada2 Exception to ownership test for property acquired in a like-kind exchange.

You must have owned your main home for at least five years to qualify for the exclusion if you meet both of the following conditions.

• You sold your main home after October 22, 2004, and
• You acquired your main home in a like-kind exchange.

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/p554-008.htm#TXMP08dcbc68 Married Persons

Married

If you and your spouse file a joint return for the year of sale, you can exclude gain if either spouse meets the ownership and use tests. See Maximum Amount of Exclusion, earlier.

Taxmap/pubs/p554-008.htm#TXMP5b7b51d3 Death of spouse before sale.

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.

Taxmap/pubs/p554-008.htm#TXMP69eafc9d Home transferred from spouse.

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/p554-008.htm#TXMP051b4cd6 Use of home after divorce.

You 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.

Taxmap/pubs/p554-008.htm#TXMP031341ba Business Use or Rental of Home

Business Use or Rental of Home

You may be able to exclude your gain from the sale of a home that you have used for business or to produce rental income. But, you must meet the ownership and use tests. See Publication 523 for more information.

Taxmap/pubs/p554-008.htm#TXMP29cf0241 Depreciation after May 6, 1997.

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. See Publication 523 for more information.

Taxmap/pubs/p554-008.htm#TXMP5d9365fe Reporting the Sale

Reporting the Sale

Do not report the 2004 sale of your main home on your tax return unless:

• You have a gain and you do not qualify to exclude all of it, or
• You have a gain and you choose not to exclude it.

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, Sale of Business Property, to report the sale of the business or rental part. See Publication 523 for more information.

Previous Page:  Publication 554 - Older Americans' Tax Guide - Life Insurance Proceeds Next Page:  Publication 554 - Older Americans' Tax Guide - Other Items Use     to find additional instances of index items.