| In May of 1997, the tax code governing profit | | | | to keep the home. |
| from the sale of a personal residence was | | | | |
| changed. In the past, any gain from a home | | | | • A new job that is 50 miles further |
| for sale could be taxed, unless rolled over | | | | away from the home than the current job. |
| into the purchase of a new home. | | | | Otherwise, if you drove 20 miles to your |
| | | | current job, then the new job must be at |
| The new Internal Revenue Service rules are | | | | least 70 miles from the home to qualify for |
| more advantageous to sellers of homes for | | | | an exemption. |
| sale. You can no longer roll a gain into the | | | | |
| new home; however, not all gain is taxable as | | | | • Your home was damaged from a natural |
| in the past. | | | | or manmade disaster, and you were forced to |
| | | | sell it. |
| Now, homes for sale have the first $250,000 | | | | |
| of profit exempt from any taxes, if you are | | | | • Perhaps an act of war or terrorism |
| the owner and filing single status. If you | | | | has caused the move. |
| file jointly with your spouse, your homes for | | | | |
| sale gain is tax exempt up to $500,000 - this | | | | • Even the birth of twins, triplets and |
| is a half-million dollars, tax-free profit. | | | | so on, made the current home for sale too |
| This means that if you purchased a home for | | | | small and impractical to keep. |
| $200,000, you could sell it for $450,000 as a | | | | |
| single or $700,000 as a couple and incur no | | | | IRS publication 523, "Selling Your Home", |
| taxes on the profit. | | | | covers many other unforeseen events that |
| | | | would qualify you for an exemption. |
| There is, however, a time and resident test | | | | |
| that must be met in order to receive this tax | | | | When you do not meet the time and resident |
| exemption for your homes for sale profit. | | | | test but qualify under one of the unforeseen |
| You must have lived in the home for two out | | | | event exemptions, you receive only a partial |
| of the past five years in order to qualify | | | | exemption for the gain on your home for sale. |
| for the tax exemption. | | | | You will be taxed on a pro-rated amount of |
| | | | the gain, based upon how long you actually |
| What If You Don't Meet the Time & Resident | | | | resided in the home. |
| Test | | | | |
| | | | If you lived there less than a year, then the |
| So, does that mean that if you do not meet | | | | profit from your home for sale is considered |
| the time and resident test you then owe taxes | | | | to be a short-term gain. This means, on the |
| on all of the gain? Not necessarily. | | | | pro-rated amount you owe taxes, you will pay |
| | | | the same tax rate as you do on your 1040 |
| The tax code allows for several specific | | | | income tax form. |
| exemptions to the time and resident test, | | | | |
| when you must move due to certain qualifying | | | | If you have lived more than one year but less |
| events. Here are a few of those events: | | | | than two in your home for sale, the profit is |
| | | | considered to be a long-term gain. Rather |
| • You must move due to the health of | | | | than paying the generally higher income tax |
| one of the residents in the home (your | | | | rate, most people are taxed at 15 percent. |
| immediate family) or the health of a relative | | | | So, if you have lived in the home for less |
| who is in your care. | | | | than one year, it is to your advantage to |
| | | | remain there until you pass the one-year time |
| • A death in your immediate family that | | | | mark - if at all possible. |
| incurs the move, such as a breadwinner dies | | | | |
| and the spouse cannot afford to keep the | | | | The changes in the tax code for profit on |
| home. | | | | homes for sale is much easier now to |
| | | | calculate and typically are more advantageous |
| • Divorce that forces a move. | | | | to the seller now, than in the past. Of |
| | | | course before making any home selling |
| • The unemployment of a breadwinner | | | | decisions or plans, consult a Certified |
| (must be qualified for and receiving | | | | Public Accountant or other tax professional. |
| unemployment compensation) and cannot afford | | | | |