Selling Your Home? You May Be Eligible to Exclude Your Profit

Are you considering selling your home but worried about the potential tax implications? It may be possible to exclude some or all of your capital gain from taxes when you sell it. Under certain conditions, homeowners can exclude a portion – or even their entire profit! – from taxation when they sell their homes. Whether you’ve owned your home for just a few years or have been in the same house for decades, this could be an appealing option if you’re trying to make the most out of your sale. Read on to learn more about eligibility requirements and how you might benefit from excluding profits on your next home sale. 

The $250,000 ($500,000, if married) home sale gain exclusion break is one of the great tax-saving opportunities.  Unmarried homeowners can potentially exclude gains up to $250,000, and married homeowners can potentially exclude up to $500,000. You as the seller need not complete any special tax form to take advantage.  

To take full advantage of the principal residence gain exclusion break, you must pass two tests: the ownership test and the use test. 

• To pass the ownership test, you must have owned the home for at least two years out of the five-year period ending on the sale date.

• To pass the use test, you must have used the home as your principal residence for at least two years out of the five-year period ending on the sale date.  

The other big qualification rule for the home sale gain exclusion privilege goes like this: the exclusion is generally available only when you have not excluded an earlier gain within the two-year period ending on the date of the later sale. In other words, you generally cannot recycle the gain exclusion privilege until two years have passed since you last used it.  

You can claim the larger $500,000 joint-filer exclusion only if neither you nor your spouse took advantage of it for an earlier sale within the two-year period. If one spouse claimed the exclusion within the two-year window but the other spouse did not, the exclusion is limited to $250,000. 

Because of the $250,000/$500,000 home sale gain exclusion break, many homeowners choose to sell their homes and move every two years or so.  If you are considering selling your home, it's important to talk with a tax specialist about whether or not it makes sense for you to do so.  At Pricewise, we can help you understand how the home sale gain exclusion break works and answer any questions you may have.  Call us today for more information.