JOHN B. KENNEDY         TAX CONSULTANT          CORPORATE FINANCE 

(816) 942-6190​​​
312 E. Woodbridge Lane
Kansas City, Mo.  64145

​EMAIL:  jbkennedy@sbcglobal.net       WEBSITE:    jbkennedytaxconsultant.com
​​
HOME SALES – EXCLUDING THE GAIN ON RESIDENCE SALES

Since 1997, eligible taxpayers have been able to exclude up to $250,000 ($500,000 for certain joint returns) realized on the sale of their principal residence.  To qualify, the seller must have owned and used the property as his or her principal residence for at least two years during the five year period ending on the date of sale.  This is the heart of this favorable tax statute for homeowners.  Gain in excess of the amount excluded is typically, though not always, treated as long-term capital gain.  As such, it is generally taxable at the rate of 15% through the end of 2012 when the 0%/15% long-term capital gain rates are scheduled to expire and the new long-term capital gain rates are scheduled to be 10%/20%.

 SECTION 121 EXCLUSION AMOUNTS

 Generally, under Section 121, taxpayers may exclude up to $250,000 of gain on a principal residence every two years.  Married individuals who jointly own a principal residence but file separate income tax returns may each exclude from gross income up to $250,000 of gain attributable to each spouse’s interest in the residence if all the statutory requirements of Section 121 are met. 

 Husbands and wives who file a joint return for the year of sale may exclude up to $500,000 of gain on the sale of a principal residence if either spouse meets the two-year ownership requirement and both spouses meet the two-year principal residence requirement.  In addition, neither spouse can have excluded gain from the sale of a principal residence within the past two years prior to the sale.  If either spouse fails to meet these requirements, the maximum amount that may be excluded from the sale of the residence is the sum of each spouse Section 121 exclusion determined on a separate basis, as if the individuals had not been married at the time they sold their principal residence. 

 GAIN EXCLUSION FOR A SURVIVING SPOUSE   

 Effective since 2008, the Mortgage Debt Relief Act of 2007 extended the period of time during which a surviving spouse may use the joint-return filer’s $500,000 home-sale gain exclusion.  Previously, the surviving spouse would be treated as a single individual entitled only to a $250,000 exclusion if the residence was sold in the year following the year of death.  Thus, the surviving spouse was entitled to the $500,000 exclusion only to the extent he or she could file a joint return with the deceased spouse’s estate, which occurred only for the tax year in which the spouse died.  The surviving spouse was able to exclude up to $500,000 only by selling the residence before the end of the year in which the spouse died. 
TIMING OFTHE EXCLUSION ON MULTIPLE RESIDENCES
  Unless the rules for a reduced Section 121 gain exclusion apply, a taxpayer may not exclude the gain from the sale of a principal residence if, during the two-year period ending of the date of sale, the taxpayer sold another principal residence for which the gain was excluded.