The home sales exclusion from capital gains tax gas after eating salad


You don’t have to count reasonably temporary absences from the home as not living there. You’re permitted to spend time away on vacation or for business reasons assuming you still maintain the property as your residence and you intend to return there.

And if you actually have to move, you might qualify for the partial exclusion. If you lived in your house for less than two years, you can exclude a part of your gain if your work location changed. This exception would apply if you started a new job or if your current employer required you to move to a new location.

If you’re selling your house for medical or health reasons, document these reasons with a letter from your physician. This, too, allows you to live in the home for less than two years. You don’t have to file the letter with your tax return, but keep it with your personal records just in case the IRS wants confirmation.

You’ll also want to document any unforeseen circumstances that might force you to sell your home before you’ve lived there the required period of time. According to the IRS, an unforeseen circumstance is "the occurrence of an event that you could not reasonably have anticipated before buying and occupying your main home," such as natural disasters, a change in your employment or unemployment that left you unable to meet basic living expenses, death, divorce, or multiple births from the same pregnancy.

Active-duty service members are not subject to the residency rule. They can waive the rule for up to 10 years if they’re on "qualified official extended duty." This means the government ordered you to reside in government housing for at least 90 days or for a period of time without a specific ending date. You’ll also qualify if you’re posted at a duty station that’s 50 miles or more from your home. The Ownership Rule

You must also have owned the property for at least two of the last five years. You can own it at a time when you don’t live there or live there for a period of time without actually owning it. The two years of residency and the two years of ownership don’t have to be concurrent.

You might have rented your home and lived there for three years, then you purchased it from your landlord. You promptly moved out and rented it to another individual, then you sold it two years later. You’ve met both the ownership and the residency two-year rules—you lived there for three and owned it for two.

Your ex-spouse’s ownership of the home and time living in the home can count as your own if you acquire the property in a divorce. You can add these months to your time of ownership and living there to meet the ownership and residency rules. Reporting the Gain

If you realize a profit in excess of the exclusion amounts or don’t qualify, the income on the sale of your home is reported on Schedule D as a capital gain. If you owned your home for one year or less, the gain is reported as a short-term capital gain. If you owned it more than one year, it’s reported as a long-term capital gain.

Keeping accurate records is key. Make sure your realtor knows you qualify for the exclusion if you do, offering proof if necessary. Otherwise, she must issue you a Form 1099-S and send a copy to the IRS. This doesn’t preclude you from claiming the exclusion but it can complicate things.

Start with what you paid for the home, then add the costs you incurred in the purchase such as title and escrow fees and real estate agent commissions. Now add the costs of any major improvements you made, such as replacing the roof or furnace. Sorry, painting the family room doesn’t count.