With all the home selling that’s been going on there is a little-known tax rule to help you figure out if you’ll owe any capital gains on your house that may have massively appreciated in the past 2 years.
This particular rule is especially helpful to know for people who may be moving to a second property or may have moved in somewhere else for a while before selling their home.
Here is an excerpt straight from the IRS Website explaining the rule.
“You may qualify to exclude from your income all or part of any gain from the sale of your main home.Your main home is the one in which you live most of the time.
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 two years (the ownership test)
- Lived in the home as your main home for at least two years (the use test)
If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).
You cannot deduct a loss from the sale of your main home.”
As you can see, there is some pretty good wiggle room for the time you have to sell a house and still use that nice main residence exclusion even if you’ve moved in somewhere else already.
So, if this holiday weekend feels pretty nice and you feel like making summer permanent sometime soon, keep this rule in mind to take the stress out of those daydreams.
We hope everyone has a great Memorial Day weekend as we keep the families of those who have sacrificed for our country in our hearts and minds.