Home sales and tax considerations: getting the one-time exclusion

For decades, the U.S. tax code has contained key provisions to encourage home ownership. One, of course, is the home mortgage interest deduction. Another is the one-time exclusion from income of gain from the sale of a principal residence. The amount of that exclusion can be up to $500,000 for a married couple filing jointly.

In practice, however, the application of the income exclusion for sale of a home can have many nuances. Sometimes the IRS sees things differently than a taxpayer does and the result is tax litigation. Homeowners in Texas and across the country will find it in their interest to keep informed about potential issues.

For starters, what are the actual requirements for getting that one-time exclusion from income for gain from the sale of a home? It is necessary to have owned the home and lived in it for a minimum amount of time before the sale. That period is at least two years during the five-year period before the sale. For married couples, it is sufficient if only one spouse meets these time requirements.

Even if the two-year requirement is not met, there may be ways to get a partial exclusion of the gain from a sale through various exceptions. For example, if a change of employment prompts the sale, the partial exclusion may still be available. But the availability of the exclusion will depend on how far away your new job is. If it is 50 miles or more, the exception may apply.

This is only one example. There are many others. When it comes to home ownership, the tax code is, figuratively speaking, part of foundations of your house.

Source: “Tax breaks for homeowners and home sellers,” The Washington Post, Benny L. Kass, 3-1-13

Our firm handles situations similar to those discussed in this post in Dallas – Fort Worth and elsewhere. To learn more about our practice, please visit our tax litigation page.