If you have a gain from the sale or exchange of your home, and were
age 55 or older on the date of sale, you may qualify to exclude some
or all of the gain from your gross income. This exclusion is a choice
and can be made only once for sales or exchanges after July 26, 1978.
Besides being age 55 or older on the date of sale, you must have
owned and lived in the home for at least 3 years out of the 5-year
period ending on the date of the sale or exchange. The 3 years of
ownership and use do not have to be continuous. An exception to the
3-year use requirement applies to certain taxpayers who become
physically or mentally incapable of self-care. For more information
about the exception, refer to Publication 523, Selling Your Home.
The maximum exclusion is $125,000, or $62,500 for an individual who
is married on the date of the sale and files a separate return. If
you and your spouse jointly own your home and file a joint return,
only one of you must meet the age, ownership, and use tests for
making this choice.
Generally, married couples are entitled to only one election per
couple, not one for each spouse. Your marital status, for purposes of
this exclusion, is determined as of the date of sale.
If either you or your spouse have excluded gain from a sale or
exchange after July 26, 1978, neither of you may choose to exclude
another gain. If you have not previously used this exclusion, but
marry someone who has, you will not be able to use the exclusion.
If you and your spouse owned separate homes before your marriage and
sold both homes after your marriage, you may exclude the gain on one
of them, but not on both. If you each sold your home before marriage,
each may claim the $125,000 exclusion on your joint or separate
returns.
The exclusion is shown on Form 2119, Sale of Your Home, which is
filed with your Form 1040 for the year of sale. Refer to Topic 702
for more information on how to report gain.
For more information on excluding gain from the sale of your home,
refer to Publication 523.
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