Exclusion of gain on your home - John R. Dundon II, Enrolled Agent
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Exclusion of gain on your home

Exclusion of gain on your home

If only you could sell, you would be able to exclude from your income up to $250,000 if you are single or $500,000 if you are married of the capital gains on the sale of your home. You must use the home as your principal residence for at least 2 of the 5 years before the sale to qualify for this tax break.

The catch is for those of you with rental property. To prevent taxpayers from turning rental property into a principal residence for a couple of years just to take advantage of the tax-free income, Congress changed the rules for sales after 2008. Now, the increase in value of the property which occurred during previous periods of rental use will not be eligible for the tax exclusion.

Beginning in 2008, a surviving spouse can get the full $500,000 exclusion from profits on the sale of a home if the sale occurs within two years after the first spouse’s death as long as both taxpayers qualified before the death and as long as the spouse remains unmarried.