{"id":472,"date":"2020-01-08T17:09:36","date_gmt":"2020-01-08T17:09:36","guid":{"rendered":"https:\/\/tavasllc.com\/?p=472"},"modified":"2026-10-05T11:10:15","modified_gmt":"2026-10-05T16:10:15","slug":"exclusion-of-capital-gain-taxes-on-your-primary-residence","status":"publish","type":"post","link":"https:\/\/legendcreative.com\/dev\/tavasllc\/exclusion-of-capital-gain-taxes-on-your-primary-residence\/","title":{"rendered":"Exclusion of Capital Gain Taxes on Your Primary Residence"},"content":{"rendered":"

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Exclusion of Capital Gain Taxes on Your Primary Residence<\/span><\/h2>\n

The sale of a primary residence can often result in a gain, resulting in a taxable event of a 20% capital gain rate, and if you are a higher income earner an additional 3.8% for net investment income taxes.\u00a0 The gain is the positive difference between the purchase price of the primary residence and the sale price.<\/span><\/p>\n

The Internal Revenue Code 26 U.S.C. \u00a7121, excludes from gross income the gain from the sale or exchange of property if, the property was used as the taxpayer\u2019s primary residence for 2 years during a 5-year period.[1]<\/a>\u00a0 The exclusion of gain cannot exceed $250,000 for those filing single, and cannot exceed $500,000 for those married filing jointly. [2]<\/a><\/span><\/p>\n

A taxpayer will be automatically disqualified for the exclusion if they acquired the property through a like-kind exchange (Code Section 1031 exchange), during the past 5 years; or the taxpayer is subject to expatriate tax (persons who are not a tax resident in the USA). [3]<\/a><\/span><\/p>\n

To qualify for the primary residence exclusion, the taxpayer is required to meet a two-prong test which proves ownership<\/u><\/strong> and residence<\/u><\/strong>.\u00a0\u00a0 The first prong is the ownership test, it requires the taxpayer to have owned and used the home as a primary residence for at least 2 years out of the last 5 years leading up to the date of sale, or date of closing.[4]<\/a>\u00a0 For married filing jointly taxpayers, only one spouse must meet the requirement. [5]<\/a> \u00a0For example, Michael files married filing jointly and lives in a mobile home for Years 1 and 2, his spouse \u201cStephanie\u201d lives in a separate residence.\u00a0 Michael moves to live with Stephanie for Year 3 through Year 5.\u00a0 In Year 5, Michael decides to sell his mobile home.\u00a0 He meets the ownership test because only one spouse has to live in the mobile home as their primary residence for 2 years out of a 5-year period.\u00a0 However, to be eligible for the exclusion Michael and Stephanie must meet the second prong of the test.<\/span><\/p>\n

The second prong is the residence test, it is based on facts and circumstances proving the home was the primary residence of the taxpayer(s).\u00a0 Unlike the ownership requirement, for married filing jointly taxpayers both spouses must prove this test<\/u><\/strong> (only one is required to prove the ownership test).\u00a0\u00a0 Facts that prove primary residence include:<\/span><\/p>\n