Sale of Your Personal Residence

Sale of Your Personal, Principle Residence – Part 2 – Some Tax Planning Considerations

Divorce

Timing is everything.

The estranged couple that files a joint return for the year before the divorce decree becomes final will qualify for the $500,000 exclusion.

If the home is sold in the year of the divorce or in a year after the divorce, only the $250,000 exclusion will be available because the couple will no longer be able to file a joint return.

Renting Your Residence

The ownership test and the use test do not have to be met concurrently as long as both are met within the five-year period. Both of the following sales would qualify for the exclusion.

Example: Dick and Lizinka bought a home in 2004 and used it as their primary residence until they retired and moved to Myrtle Beach in 2007. They rented this house to their son, Campbell, from 2007 until 2009, when the house was sold. They meet both tests.

Example:  Dick and Lizinka rented a house with an option to buy beginning on January 1, 2006. They bought the house on January 1, 2007, and lived in it for one more year before moving to a Myrtle Beach condo. They rented it to their son, Campbell, for an additional year until it was sold on January 1, 2009.  Both tests are met and they qualify for the exclusion.

Another Exception – The Nursing Home

If you own and use a home for one year and then have to move into a state-licensed nursing facility due to a mental or physical disability, you will qualify for the exclusion.

Example:  Dick bought a house on January 1, 2008.  On January 31, 2009, the old warrior was forced into a nursing home on account of his amputation and a flare up of all his old war wounds. Dick would qualify for the exclusion.

Call Us

As you can see, there are a number of tax planning opportunities and tax traps related to the use and disposition of your personal residence. Let us help you pay the minimal tax on the sale of your home.

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