By Cindy Nichols, CPA
T
The $500,000
Homeowner Tax Break
Understand the rules now
to avoid a tax surprise later
There is large tax break that allows you to exclude up
to $250,000 ($500,000 married) in capital gains on the sale of
your personal residence. But making the assumption that this
gain exclusion will always keep you safe from tax can be a big
mistake. Here is what you need to know:
The basics to qualify for the capital gain tax exclusion
when you sell your home, you need to pass three hurdles:
1. It’s your main home. It can be a traditional home, a condo,
a houseboat, or mobile home. Main home also means the place
of primary residence when you own two or more homes.
2. You pass the ownership test. You must own your home
3. You pass the residency test. You must live in the home for
In addition, there are some additional quirks to know, including:
• You can pass the ownership test and the residence test at
different times.
• You may only use the home gain exclusion once every
two years.
• You and your spouse can be treated jointly OR separately
depending on the circumstances.
When to Pay Attention
You have been in your home for a long time. The longer you
live in your home the more likely you will have a large capital
gain. Long-time homeowners should check to see if they have
a capital gains tax problem prior to selling their home.
Two homes into one. Often newly married couples with
two homes have a potential tax liability as both individuals
may pass the required tests on their own property but not on
their new spouse’s property. Prior to selling these individual
homes, you may wish to create a plan of action that reduces
your tax exposure.
Selling a home after divorce. Property transferred as a result
of a divorce is not deemed a sale of your home. However, if
the ex-spouse that retains the home later sells the home, it
may have an impact on the amount of gain exemption available.
You are helping an older family member. Special rules apply
to the elderly who move out of a home and move into
assisted living and nursing homes. Prior to selling property
it is best to review options and their related tax implications.
In some cases you may
be eligible for a partial gain exclusion if you are required to
move for work, disability, or unforeseen circumstances.
Other situations. There are a number of other exceptions to
the home gain exclusion rules. These include foreclosure,
debt forgiveness, inheritance, and partial ownership.
of this tax exclusion is in retaining good records. You must
be able to prove both the sales price of your home and the
associated costs you are using to determine the gain on your
property. So keep all sales records, original home purchase
records, improvement costs, and other documents that support
your home’s capital gain calculation.
FLORIDA WOMEN MAGAZINE 813.682.9364 AUGUST 2019 • 23