Ask the Expert: Tax exemption on the sale of a primary residence
Must both spouses be on the tax bill in order to qualify for the $500,000 exemption on the profit from the sale of their home? Is it OK if only one is named?
A married couple must file a joint tax return to qualify for the $500,000 exemption, and must meet an ownership test and a "use" test: During two of the five years before the sale, at least one spouse must have owned the house, and both spouses must have lived there.
A married couple who file separately can each qualify for an individual $250,000 exemption if they both meet both tests. An unmarried couple who both pass the ownership and use tests can also each qualify for a $250,000 exemption.
But regardless of your filing status, you cannot use the $250,000/$500,000 exemption more than once every two years.
The tests are easier to meet than you may assume. The two out of five years' "use" don't need to be continuous, provided they total 24 months or 730 days. Also, you don't have to be living in the house when you sell it. For example, you'd meet the "use" test if you lived there in Year One, rented it to someone else for Years Two and Three, lived in it for Year Four, and rented it out again for Year Five. And the periods of use and ownership don't have to occur at the same time, provided each one totals 24 months or 730 days. If you rented your house before buying it, for example, the time you lived there as a renter would count toward a two-year "use" test.
The bottom line
The size of your potential tax break on the sale of your primary residence depends partly on your filing status.
More information
https://nwsdy.li/IRScapitalgainshomesale
TO ASK THE EXPERT Send questions to act2@newsday.com. Include your name, address and phone numbers. Questions can be answered only in this column. Advice is offered as general guidance. Check with your own consultants for your specific needs.
