If you have a gain from the sale or exchange of your main home in 2002, you may be able to exclude from income up to $250,000 of the gain ($500,000, for certain married taxpayers filing a joint return). The exclusion may be allowed each time you sell or exchange your main home, but generally no more frequently than once every two years.

If you sold your home under a contract that provides for part or all of the selling price to be paid in a later year, you made an "installment sale." Refer to Tax Topic 705 for more information.

To be eligible for an exclusion, your home must have been owned by you and used as your main home for a period of at least two years out of the five years prior to its sale or exchange. You can meet the ownership and the use tests during different two year periods. However, both tests must be met during the five–year period ending on the date of the sale or exchange. If you and your spouse file a joint return for the year of the sale or exchange, you can exclude gain if either of you qualified for the exclusion.

If you did not meet the ownership and use tests, you may be allowed to exclude a portion of the gain realized on the sale or exchange of your home if:

• You sold or exchanged your home due to a change in health or place of employment or due to unforseen circumstances, or
• You sold or exchanged a home due to a change in health or place of employment, or due to certain unforseen circumstances and during the 2–year period ending on the date of the sale or exchange you sold or exchanged another home at a gain and excluded all or part of that gain.

Report the sale or exchange only if you have a gain that is not excluded from your income. If you have a gain that is not excluded you must report it on Schedule D Form 1040 (PDF).

For additional information, refer to Publication 523 (PDF), Selling Your Home. This publication also contains information you may need if you sold your home before May 7, 1997.

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