You May Be Able To Shelter Up to $500,000 In Your Home!

If you have a gain from the sale or exchange of your main home in 2003, youmay be able to exclude from income up to $250,000 of the gain ($500,000, for certainmarried taxpayers filing a joint return). The exclusion may be allowed eachtime you sell or exchange your main home, but generally no more frequently thanonce every two years. You cannot deduct a loss from the sale of your main home.

If you sold your home under a contract that provides for part or all of theselling price to be paid in a later year, you made an installmentsale. Refer to Topic 705 for more information.

To be eligible for an exclusion, your home must have been owned by you and usedas your main home for a period of at least two years out of the five yearsprior to its sale or exchange. You can meet the ownership and the use testsduring different two year periods. However, both tests must be met during thefiveyear period ending on the date of the sale or exchange. If you and yourspouse file a joint return for the year of the sale or exchange, you canexclude up to $250,000 of gain if only one of you qualified for the exclusion.

If you did not meet the ownership and use tests or if during the 2yearperiod ending on the date of the sale or exchange you sold or exchanged anotherhome at a gain and excluded all or part of that gain, you may be allowed toexclude a portion of the gain realized on the sale or exchange of your home if

You sold or exchanged your home due to a change in health or place ofemployment or due to unforeseen circumstances

A qualified real estate professional can give you more details on other taxbenefits and liabilities! Consult a professional for more information about thetax benefits of owning a home!

You may qualify to exclude from your income all or part of any gain from thesale of your main home. Your main home is the one in which you live most of thetime.

Ownership and Use Tests

To claim the exclusion, you must meet the ownership and use tests. Thismeans that during the 5-year period ending on the date of the sale, you musthave

Owned the home for at least 2 years (the ownership test) Lived in the homeas your main home for at least 2 years (the use test) Gain

If you have a gain from the sale of your main home, you may be able toexclude up to $250,000 of the gain from your income ($500,000 on a joint returnin most cases).

If you can exclude all of the gain, you do not need to report the sale onyour tax return If you have gain that cannot be excluded, it is taxable. Reportit on Schedule D (Form 1040) Loss

You cannot deduct a loss from the sale of your main home.

Worksheets

Worksheets are included in Publication 523, Selling Your Home to help youfigure the

Adjusted basis of the home you sold
Gain (or loss) on the sale
Gain that you can exclude
Reporting the Sale

Do not report the sale of your main home on your tax return unless you havea gain and at least part of it is taxable. Report any taxable gain on ScheduleD (Form 1040).

More Than One Home

If you have more than one home, you can exclude gain only from the sale ofyour main home. You must pay tax on the gain from selling any other home. Ifyou have two homes and live in both of them, your main home is ordinarily theone you live in most of the time.

Example One

You own and live in a house in the city. You also own a beach house, whichyou use during the summer months. The house in the city is your main home; thebeach house is not.

Example Two

You own a house, but you live in another house that you rent. The rentedhouse is your main home.

Business Use or Rental of Home

You may be able to exclude your gain from the sale of a home that you have usedfor business or to produce rental income. But you must meet the ownership anduse tests.

Example

On May 30, 1997, Amy bought a house. She moved in on that date and lived init until May 31, 1999, when she moved out of the house and put it up for rent.The house was rented from June 1, 1999, to March 31, 2001. Amy moved back intothe house on April 1, 2001, and lived there until she sold it on January 31,2003. During the 5-year period ending on the date of the sale (February 1, 1998- January 31, 2003), Amy owned and lived in the house for more than 2 years.