Wednesday, December 20, 2006


You may not owe any tax at all if your gain is less than $500,000 (MFJ) or $250,000 (single). But even on smaller gains there may be a taxable gain if you don’t meet ownership periods and ‘use of the property’ rules.
The first step is to calculate your gain which is the sales price minus your ‘adjusted basis’
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The sales price is the total gross price without deducting any mortgage, you the seller, pay off that is deducted from the gross sales price.

The basis is often your cost plus improvements minus certain expenses of the sale.
However the basis may be arrived at in some other way as described in IRS publications.
Generally the rules for the $250,000 - $500,000 exclusion are as follows:

Ownership period = at least two years during the five years before the sale.
Use period = Use as a principal residence = at least two years during the five-year period before the sale.

Prior exclusion period= Even if you meet the ownership and use test, you cannot exclude the gain if you have excluded a gain from the sale of another home during the two-year period before the sale occurs.
There are a few special case situations that permit exclusion even if the above tests are not met. In some cases there are reduced exclusions, so these general rules don’t cover every possibility.

After you read this if you need further, more detailed information see IRS Forms and Publications at
Here are some of the IRS publications
Publication 527 Residential Rental Property
Pub. 530 Tax Info for First-time homeowners
Pub. 544 Sales and Other dispositions of assets

This information is not intended to be advice to the recipient.In compliance with Treasury Department Circular 230, unless stated to the contrary, any Federal Tax advice contained in this Blog was not intended or written to be used and cannot be used for the purposes of avoiding penalties.

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