The tax code recognizes the importance of homeownership by providing certain tax breaks when an owner sells their home. To qualify for these breaks, the home must meet certain eligibility tests.
The address listed on your:
a. U.S. Postal Service address
b. Voter Registration Card
c. Federal and state tax returns
d. Driver’s license
The home is near:
a. Where the owner works
b. Where the owner banks
c. The residence of one or more family members
d. Recreational clubs or religious organizations of which the owner is a member.
The kind of home is not all that important in determining if it is a residence. A single-family home, a condominium, cooperative apartment, mobile home or houseboat can all count as a residence. The sale qualifies for the exclusion of $250,000 gain ($500,000 if married filing jointly) if the following is true:
a. The owner owned the home and used it as their main home during at least 2 of the last 5 years before the date of sale.
b. The home was not acquired through a like-kind exchange (1031 Exchange) during the past 5 years.
c. The owner did not sell another home within the last 2 years and took advantage of this gain exclusion.
If the owner transferred the home or a share of a jointly owned home to a spouse or ex-spouse as part of a divorce settlement the conveying spouse is considered as having no gain or loss. That spouse has nothing to report on their tax forms.
If the homeowner owns or lives in more than one home, the test for determine which one is the main home is a “facts and circumstances” test. The most important factor is where the homeowner spends the most time. However, other factors can enter the picture as well. The more of the following that are met, the more likely it is the main home.
Clarification of usage and residency and exceptions for the maximum capital gain exclusion and partial capital gain exclusion.
If the homeowner owns the home for at least 24 months during the last 5 years before the sale of the home, the ownership requirement is met. The date of sale is either the date the title is transferred or the date the economic burdens and benefits of ownership have shifted to the buyer. The 24 month of residence can fall anywhere within the 5-year period. It doesn’t even have to be a single block of time. All the homeowner needs is a total of 24 months (730) days of residence during the 5-year period.
If the homeowner was ever away from home and whether that counts as time living at home or not. A vacation or other short absence counts as time you lived at home even if you rented out the home during the sabbatical or vacation.
In the event the homeowner is physically or mentally disabled, said homeowner only has to show that the home was that person’s residence for at least 12 months out of the 5 years leading up to the date of sale. In addition, any time spent in a care facility counts towards the residence requirement so long as the facility is licensed by the state or other political entity for people with a disability.