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