Primary Residence Tax Benefits
A: I've been recently asked this question a lot by my own clients so figured to make it into a post to clear up any confusion. If you are a homeowner or preparing to purchase your first home, here are the tax relief guidelines (as noted directly from the IRS) that you will have to meet to save the big bucks!
To claim the maximum exclusion on the Capital gains on the sale of your home, you MUST first meet the Ownership and Use tests.
OWNERSHIP & USE TESTS (Out of 5 YR Period)
Example 1 - home owned and occupied for 3 years.
Amanda bought and moved into her main home in September 2002. She sold the home at a gain on September 15, 2005. During the 5-year period ending on the date of sale (September 16, 2000 - September 15, 2005), she owned and lived in the home for 3 years. She meets the ownership and use tests.
Now that you are aware of the Ownership and Use Tests that you must pass, you can move on to how much you can deduct. Here are the Maximum Exclusions as noted on the IRS website.
MAXIMUM EXCLUSIONS
You can exclude up to $250,000 of the gain on the sale of your main home if all of the following are true:
If you and another person owned the home jointly but file separate returns, each of you can exclude up to $250,000 of gain from the sale of your interest in the home if each of you meets the three conditions just listed.
You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true.
If either spouse does not satisfy all these requirements, the maximum exclusion that can be claimed by the couple is the total of the maximum exclusions that each spouse would qualify for if not married and the amounts were figured separately. For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property.
UrbanDigs Says: The tax benefits that Uncle Sam provides to you for investing in housing in America is what makes it such a wise investment, and an investment that historically has proven to build wealth and appreciate over the long term. By understanding exactly what you need to do to qualify for the maximum exclusion, you are on the right track towards building wealth and living a financially sound and independent life! Good Luck!
Comments (4)
All very well and fine, but what are the NYS and NYC taxes on such gains??
Thanks.
Posted by t hardy | December 1, 2006 8:31 PM
T Hardy:
Here is response from my accountant:
"No tax at all Federal, State & City provided that the gain is less than 500k"
I paid transfer taxes for city and state at closing.
Noah
Posted by Noah | December 4, 2006 4:33 PM
Hi,
In NY State, if I move out of my primary residence after 2 years (both lived and owned), how much time do I have to sell that primary in order to claim the 2 year primary residence to avoid capital gains (under 250k for a single)?
Jason
Posted by Jason | October 21, 2007 9:07 AM
I have a question. It says that you have to live in your primary residence for two years, but are there other stipulations that say you must live in that home for at least six months of each year or something similar to that? Thanks in advance, and great site; I absolutely love the information.
Posted by InvestmentPropertiesInfo | March 18, 2008 9:04 PM