Publication 523 |
2001 Tax Year |
Excluding the Gain
You may qualify to exclude from your income all or part of any gain
from the sale of your main home. This means that, if you qualify, you
will not have to pay tax on the gain up to the limit described under
Maximum Amount of Exclusion, next. To qualify, you must
meet the ownership and use tests described later.
You can choose not to take the exclusion. In that case, you must
include in income your entire gain.
You can use Worksheet 2 to figure the amount of your
exclusion and your taxable gain, if any.
Worksheet 1. Adjusted Basis of Home Sold and Worksheet 2. Gain (or Loss), Exclusion and Taxable Gain
Maximum Amount of Exclusion
You can exclude the entire gain on the sale of your main home up
to:
- $250,000, or
- $500,000 if all of the following are true.
- You are married and file a joint return for the year.
- Either you or your spouse meets the ownership test.
- Both you and your spouse meet the use test.
- During the 2-year period ending on the date of the sale,
neither you nor your spouse excluded gain from the sale of another
home.
Reduced Maximum Exclusion
You can claim an exclusion, but the maximum amount of gain you can
exclude will be reduced, if either of the following is true.
- You did not meet the ownership and use tests, but you sold
the home due to:
- A change in place of employment,
- Health, or
- Unforeseen circumstances, to the extent provided in
regulations (as discussed below).
- Your exclusion would have been disallowed because of the
rule described in More Than One Home Sold During 2-Year Period,
later, except that you sold the home due to:
- A change in place of employment,
- Health, or
- Unforeseen circumstances, to the extent provided in
regulations (as discussed below).
Use Worksheet 3 to figure your reduced maximum
exclusion.
Unforeseen circumstances.
The IRS has not issued regulations defining unforeseen
circumstances. You cannot claim an exclusion based on unforeseen
circumstances until the IRS issues final regulations or other
appropriate guidance.
Reduced Maximum Exclusion
More Than One Home Sold During 2-Year Period
You cannot exclude gain on the sale of your home if, during the
2-year period ending on the date of the sale, you sold another home at
a gain and excluded all or part of that gain. If you cannot exclude
the gain, you must include it in your income.
However, you can still claim an exclusion if you sold the home due
to:
- A change in place of employment,
- Health, or
- Unforeseen circumstances, to the extent provided in
regulations (as discussed earlier).
The maximum amount you can exclude is reduced. See Reduced
Maximum Exclusion, earlier.
Example 1.
In September 1999, Paul and Nadine bought a new home. In November
1999, they sold their old home at a $40,000 gain. They had owned and
lived in the old home for 4 years. They excluded the gain on the sale.
On October 1, 2001, Paul and Nadine sold the home they purchased in
September 1999 at a $15,000 gain. The sale was not due to a change in
place of employment or health. Because Paul and Nadine had excluded
gain on the sale of another home within the 2-year period ending on
October 1, 2001, they cannot exclude the gain on this sale.
Example 2.
The facts are the same as in Example 1 except that Paul
and Nadine did not sell the home purchased in September 1999 until
December 3, 2001. Because they had not excluded gain on the sale of
another home within the 2-year period ending on December 3, 2001, they
can exclude the gain on this sale.
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