QUESTION:
Under the 1997 Tax Act passed on 8/5/97, how do the home sale rules work?
ANSWER:
If you meet 3 tests, you qualify:
- "USE TEST:" Did you live in your principal residence for any 2 year total period within the last 5 years?
- The 2 years do not have to be consecutive periods - it might be one day at a time, as long as it totals 2 years.
- "OWNERSHIP TEST:" Did you own the property for a 2 year total period within the last 5 years?
- "BEFORE TEST:" Did you do a tax free sale within the last 2 years?
If you meet these tests, you can exclude from taxable income $250,000 of profit if you are single; $500,000 if you are married filing a joint return.
If only 1 spouse meets the Ownership Test, the full exclusion is allowed, as long as both spouses meet the Use Test.
If one spouse has done a tax free sale within the last 2 years, the other spouse may sell and exclude $250,000.
For more information, see 1997 Tax Act
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