Sales of personal homes can have their gains excluded up to $250,00 for singles and $500,00 for those filing joint when certain tests are met.
A. The home must have been owned for at least two out of the five years prior to the sale. Those two years don’t have to be consecutive.
B. The exclusion of gain can only be used once every two years.
C. If married, either spouse can meet the ownership test, but both spouses need to meet the use test to exclude the full $500,000. If not, each spouse is limited to what they could exclude if they were not married.
D. Surviving spouses who remain unmarried are allowed to exclude gain as if they were married ($500,000) if the home is sold within two years of the death of the spouse.
Ownership and use tests can be suspended for those in the military, peace corps, foreign service, and intelligence service.
The use test can also be suspended in case of divorce if one of the divorced couples lives in the home during the period. Then when the home is ultimately sold, both individuals can exclude up to $250,000 on their individual returns.
There are also situations were a reduced exclusion might apply. Some of these could include if a portion of the home had previous been used for business purposes, a change in employment, health or some other unforeseen circumstances that don’t allow the taxpayer to meet the time test.