How to Take Tax Deductions for Non-Cash Tax Break on Home Sales When Owned Less Than Two Years

This page last updated on
July 16, 2003

New Rules for Home Sales
Do You Have to Pay Tax on Your Gain?

In December 2002, the IRS released new rules for the sale of a home. The new rules clarify the partial exclusion of gain rules when you fail to meet the two out of five years ownership and use tests. The general rule under Internal Revenue Code Section 121 allows you to exclude from income up to $250,000 of the gain ($500,000 if you file a joint return), if you own and occupy your home for at least two years out of five years prior to the date of sale.

In some situations, unforeseen circumstances arise making it necessary for you to sell your home and move before these tests are met. You may be eligible for a reduced exclusion if you sold your home before the end of the two-year period if any of the following apply:

	Change in the place of employment forces a move.
	Poor health.
	Involuntary conversion of the residence.
	Death.
	Natural or man-made disaster, or act of war or terrorism.
	Change in employment or self-employment results in an inability to pay housing costs.
	Divorce or legal separation.
	Multiple births resulting from the same pregnancy.

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New Rules for Home Sales Do You Have to Pay Tax on Your Gain?

New Rules for Home Sales
Do You Have to Pay Tax on Your Gain?