Sale of a Primary Residence

Sale of a Primary Residence   07/18/2018

This is just a nutshell of a synopsis and is no way complete—your situation may differ from anybody else’s.

If you have lived in and owned your home for 2 full years out of the last 5, you may be able to exclude from income $250,000 of gain. The exclusion is $500,000 for a married couple filing jointly, if both qualify for the use test, with only 1 of them needed to qualify for the ownership test.  But there are caveats and limits and thresholds for exceptions to this exclusion. And it can only be taken 1 time every 2 years.

If the home was a rental and then converted to personal use the last 2 of the five years, then only 40% of the gain qualifies for the exclusion. (2/5 = 40%). This is to keep owners of multiple rentals from moving every two years to another rental and benefitting from the exclusion 100% on each one.

If depreciation was taken (and it must for business use), the amount of the depreciation up to the gain may not qualify for the full exclusion.

If the home was for personal use for 2 years and then converted to rental, the full exclusion may be allowed except for all or part of the depreciation taken.

If the home was the end result of a Section 1031 (non-taxable) exchange, the holding period must be 5 years of personal use.

If you had business use of the home while it was your primary residence, additional limitations apply.

Business use within the home and separate space from living quarters  while a personal residence require different calculations too detailed to list here.  Be aware that the exclusion of gain may or may not be applicable due to your special circumstances.

Please ask your Tax Consultant before you sign the papers, as to what the results might be.  We don’t want to see you spend the money and then find out there is a tax bill to pay.  Call 503-619-1040 with your questions.