Enjoy TAX-FREE income on the sale of your primary residence
If you OWNED and OCCUPIED your PRIMARY residence for at least 2 out of the last 5 years, Section 121 of the tax code allows up to $250K (single) or $500K (married filing jointly) exclusion on the gain from a sale. For this to work, you need to meet both the ownership and use test. For married couples to benefit from the $500K, only 1 spouse needs to have owned the property. However, BOTH spouses need to occupy the property for 24 months.
What type of residence qualifies?
Remember this benefit applies to your PRINCIPAL residence! If you alternate between 2 residences, your qualifying principal residence will be the one that you use most of the time during the year.
2. Qualifying events if you have to sell before the 2 year mark
If you have to sell the house before the 2 year mark, all hope is not lost! The tax law allows you to benefit from reduced maximum gain exclusion (meaning less that $250K or $500k exclusion) in the following instances:
Change in the location of employment
Health – Ideally you obtain evidence of a physician’s recommendation
Cessation of employment as a result of which the individual is eligible for unemployment compensation
Change in employment or self-employment that results in inability to pay housing costs and reasonable basic living expenses
Divorce or legal separation under a decree of divorce or separate maintenance
Multiple births resulting from the same pregnancy
Involuntary conversion of the residence
Death
Make sure you explain to your tax professional why you’re selling the house prematurely and based on your facts and circumstances you could still qualify for some gain exclusion! Book an appointment or email us at contact@lobecpa.com for further details about this strategy.