Primary Residence Exceptions is something every homeowner needs to be aware of. It has the power to bring you plenty of monetary benefits, as you could qualify to exclude all or part of the gain from the sale of your home from your income of up to $250,000. If you’re married, you may be able to exclude up to $500,000, and this could result in a significant tax break and ultimately, a better financial situation for you moving forward. Here’s everything you need to know about the Primary Residence Exceptions.
You Must Meet the Requirements
Like everything in life, the Primary Residence Exclusion does come with a list of requirements that must be met in order to qualify. They vary depending on whether you’re single or not, but surprisingly enough, the requirements for the Primary Residence Exceptions aren’t hard to meet.
- You must own your residence for at least two years within the last five years
- You must have lived at your residence for at least two years within the last five years
- You haven’t used the exclusion in the last two years
For married couples:
- You must be married and file a joint return for the year
- You or your spouse must have owned the residence for at least two years within the last five years
- Both you and your spouse must have used the home as your primary residence for at least two of the last five years
- Neither of you has used the exclusion within the last two years
You Cannot Use the Primary Residence Exceptions on a Second Sale
One major factor homeowners need to be aware of is that you cannot use the Primary Residence Exclusion more than once in every two years. This still applies even if you make a second sale. So, although you have met the requirements and received the exclusion for the sale of your second home, if you received the exclusion from your first home within the last two years, you are not eligible. Fortunately, there are some exceptions if the sale of the second home was a result of unforeseeable circumstances.
The Exceptions to the Rule
There are some situations where a prorated exclusion limit is permitted on your second home, even if you received an exclusion within the last two years. Generally, it only applies if you had to sell your second home for unforeseeable circumstances, such as a change in employment or health issues.
Change in Job
If you changed jobs, and it’s at least 50 miles farther from that of your previous workplace and home, you can still claim an exclusion but the amount may be reduced. Termination of employment also applies.
If you had to sell your home in order to obtain, provide or aid in the diagnosis, cure, or treatment of the illness or injury of the qualified individual, you qualify for the exception.
As for who the qualified individuals pertain to, it includes: children, stepchildren, adopted children, parents, stepparents, grandparents, brothers, sisters, stepsiblings, half-siblings, mother and father-in-law’s, nieces, nephews, aunts, and uncles.
There’s also the exception to the rule if you had to sell your home as a result of unforeseeable circumstances. For example, if the home was destroyed by a natural or man-made disaster, death, divorce or legal separation or multiple births from the same pregnancy (twins, triplets, etc.) you may qualify.
Being able to exclude the sale of your primary home from your income will serve as a huge benefit when tax season comes around. So be prepared, and find out if you qualify today.