For married couples selling their primary home and filing jointly, you may exclude up to $500,000 of your capital gain from tax ($250,000 for singles.) To claim the whole exemption, you must have owned and lived in your home, as your principal residence, an aggregate of at least two of the five years before the sale.
How do you calculate the capital gain on your sale?
- Your home’s selling price
- Minus Deductible Closing Costs
- (Points, Prepaid Interest and your share of prorated property taxes)
- Minus your Selling Costs
- (Real Estate Broker’s Commission, Title Insurance, Legal Fees,
- Advertising Costs, Escrow Fees and Inspection Fees)
- Minus your Tax Basis in Property
- (Purchase Price + Purchase Expenses + Capital Improvements minus
- Any depreciation, minus any casualty losses or insurance payments)
If you don’t meet the requirement, because you haven’t lived in your home a total of two out of the last five years, you may still be eligible for a partial tax break in certain circumstances. What are those circumstances?
- Change of employment
- Your doctor recommended the move for your health
- Selling due to a divorce
- Due to unforeseen circumstances like death in family or multiple births
How do you calculate the residency requirement? Take the number of months you lived in your home before the sale and divide it by 24.
What happens if you live in your home one year and then go into a nursing home? The ownership test is lowered to one year out of five years and the time spent in the nursing home still counts toward your ownership time and use of residence.
Rosanne Braxton, CFP®