You generally can exclude up to $250,000 of gain ($500,000 if married filing a joint return) realized on the sale or exchange of a main home in 2001. The exclusion is allowed each time you sell or exchange a main home, but generally not more than once every two years. To be eligible, during the 5-year period ending on the date of the sale, you must have owned the home for at least 2 years, and lived in the home as your main home for at least 2 years.

Note. The maximum amount of gain that you can exclude will be reduced if you do not meet the ownership and use tests due to a move to a new permanent duty station.

For married individuals filing jointly who do not qualify for the $500,000 exclusion for gain on a sale of a home because they do not satisfy the two-year ownership test, the two-year use test, and the prohibition on any other sale or exchange of a residence within the last two years, the limit on the amount of excludable gain should be calculated separately for each spouse. In that case, the maximum exclusion for the couple is equal to the sum of the exclusions to which the spouses would otherwise be entitled if they had not been married.

For sales before May 7, 1997, different rules applied. Under those rules, you had to buy and live in a new home within a specified replacement period in order to postpone paying tax on all or part of the gain from the sale of your main home.

For more information on both the old and new laws, see Publication 523.

Property used for rental or business. You may be able to exclude your gain from the sale of a home that you have used as a rental property or for business. But you must meet the ownership and use tests discussed in Publication 523.

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