One of the biggest gifts that the government has ever given ordinary tax payers is the homeowners capital gains tax exemption for the sale of your primary residence. According to this law, you are entitled to exclude up to $250,000 of capital gain if you are single and up to $500,000 of capital gain if you are married. In order to qualify for this exclusion, there are 2 tests that you must pass. 1. the use test 2. the ownership test.
With these tests, you must own and use the property as your primary residence for no less than 2 of the last 5 years. If you qualify for this exemption, unlike the old rules where you had to reinvest the money, with the new rules no reinvestment is necessary. You can put the money in your pocket tax free! In recent years this law has allowed people to make more money buying, living in and selling real estate than on their primary job. It has encouraged more frequent moving and in some cases owners have moved into second homes and investment properties, converted them to primary residences and sell after 2 years and pay no tax on the gain.
This rule sounds really straight forward and simple but it can be complicated. As you know, life usually doesn’t read the book and there are many different situations that can arise. I did some research on this rule and found IRS publication 523 at http://www.irs.gov/publications/p523/index.html
It details the many different scenarios and will help you navigate this law.
For more information on selling your home visit my site at http://www.jdanielrealty.com/sellers.php