The Personal Home Exclusion

For many people, selling a home is an exciting event that symbolizes a new chapter in life. Under Internal Revenue Code (IRC) Section 121, sellers can exclude up to $250,000 (or $500,000 if a married couple) of the gain from the sale of their residential home.

The personal home exclusion has a strict set of rules. It only applies to the sale of your principal residence. You must own the home at least two out of the five years immediately before the sale. It also requires ownership, such as an individual owning the home outright. A single-owner entity that is not treated separately from its owner for tax purposes, such as an LLC, is also an “owner,” but a corporation is not. The IRC provides rules of ownership for trusts under which revocable trusts generally are treated as owned by the individual grantor, while irrevocable trusts are not.

You must use the home as your residence at least two out of the five years immediately before the sale. The time that the property was used for business purposes will not destroy your ability to claim the exclusion, but it can affect your exclusion calculation. If you sold another home within the two years prior to this sale using the home exclusion, you will not qualify. The professionals at The Center for Financial, Legal, and Tax Planning, Inc. are more than knowledgeable with regards to Personal Home Exclusion. Please contact us at (618) 997-3436 for more information.