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Q: federal captial gains tax on sale of primary residence ( Answered 4 out of 5 stars,   1 Comment )
Subject: federal captial gains tax on sale of primary residence
Category: Miscellaneous
Asked by: hyram-ga
List Price: $5.00
Posted: 06 Feb 2003 13:14 PST
Expires: 08 Mar 2003 13:14 PST
Question ID: 158175
selling primary residence and federal taxes.  How long does a married
couple have to own their primary residence before selling and not pay
capital gains tax?  It seems to be unclear, I have heard 3 different
answers.  Is the length of time 5 years or 2 years to make the profits
from the sale of the primary home tax free? Also, is the tax prorated
if the sale happens before the time limit?
Subject: Re: federal captial gains tax on sale of primary residence
Answered By: missy-ga on 06 Feb 2003 13:33 PST
Rated:4 out of 5 stars
Hello Hyram,

According to the IRS, the sale of your home is exempt from the capital
gains tax if it's been your primary residence for *two* of the five
years prior to the sale.

"To exclude gain, a taxpayer must both own and use the home as a
principal residence for two of the five years before the sale. The
ownership and use periods need not be concurrent. The two years may
consist of 24 full months or 730 days. Short absences, such as for a
summer vacation, count as periods of use, but longer breaks, such as a
one-year sabbatical, do not. The taxpayer also must not have excluded
gain on another home sold during the two years before the current

IRS Issues Home Sale Exclusion Rules,,id=105042,00.html

You may still be entitled to an exclusion of a lesser amount if you've
owned your primary residence for less than two years, but had to sell
under a set of limited circumstances:

Change in place of employment.
Sale or exchange by reason of health.
Sale or exchange by reason of unforseen circumstances.

This is explained fully in The Federal Registry:

78367 Federal Register / Vol. 67, No. 247 / Tuesday, December 24, 2002
/ Rules and Regulations

Hope this helps!


Search strategy: Information was available directly from the index
page at

Request for Answer Clarification by hyram-ga on 06 Feb 2003 14:52 PST
my cpa thinks the "...five years prior to the sale." means that one
has to own the house for five years, and live in it for two years of
that five.

also, if it is 2 years, how is the tax burden calculated?

Request for Answer Clarification by hyram-ga on 06 Feb 2003 14:54 PST
if it is two years, and I sell at 18 months and made $200,000 profit,
how is the tax liability calculated and what would the amount of the
tax due be?

Clarification of Answer by missy-ga on 06 Feb 2003 15:29 PST
Hello again,

According to the IRS, you need only own and live in the house for two

"A 1997 law changed the old "replacement residence" rules with a new
rule that excludes up to $250,000 ($500,000 for a married couple
filing jointly) of gain. Unlike a previous once-in-a-lifetime
exclusion for older persons, you may claim the new exclusion
repeatedly regardless of your age, but usually only once every two

Sold your home?,,id=105119,00.html

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

Ownership and Use Tests

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

    * Owned the home for at least 2 years (the ownership test)
    * Lived in the home as your main home for at least 2 years (the
use test)"

Sale of Residence - Real Estate Tax Tips,,id=98921,00.html

Figuring your tax burden if you sell at 18 months is not exactly
straightforward.  There are other considerations besides your profit
on the home, such as adjusted basis and how that basis was determined.
 Figuring your tax is a matter for yourself or your tax professional,
as I do not have the necessary details and, for your privacy and
safety, you shouldn't post them to a public forum.

You can find the information here:

IRS Publication 523:  Selling Your Home

...and schedule D, for Capital Gains and Losses here:

If you are uncomfortable figuring this on your own or having your CPA
figure it for you, I highly recommend you follow jacktrades-ga's
advice, and consult a qualified real estate tax attorney for further

Good luck.

hyram-ga rated this answer:4 out of 5 stars and gave an additional tip of: $2.00
thank you for the links and opinion.

Subject: Re: federal captial gains tax on sale of primary residence
From: jacktrades-ga on 06 Feb 2003 14:04 PST
For some reason, the tax publications don't discuss an exclusion that
is in the tax code - real estate tax lawyers are aware of the
exclusion. Outside that of real estate tax lawyers, the knowledge is
spotty. If you sold your primary residence and didn't live it in the
last 2 years out of 5, you should consult a real estate tax attorney
to be comfortable about excluding the gain from taxable income.

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