If you're thinking of selling your home, know that you may be able to avoid paying taxes on $250,000 of capital gains when you sell it -- if you meet a few requirements. Anyone planning to sell a primary residence in the near future should read up on the exciting home-sale exclusion rules, which are just a few years old. While you used to be able to exclude up to $125,000 of gain just once in your life, you can now exclude up to a whopping $250,000 every few years.
If that isn't tantalizing enough, consider that married couples can exclude up to a half-million dollars. That amounts to many tens of thousands of dollars in savings. Here are some of the requirements:
- You (the seller) must have owned and lived in the home as your principal residence for at least two of the five years preceding the date of sale. The two years don't have to be consecutive, though.
- In most cases, you can only take advantage of this home sale exclusion once during any two-year period.
- A married couple may exclude up to $500,000 of their home sale gain if all of the following apply:
- They file a joint return for the year of the home sale;
- Either spouse owned the home for at least two years in the five-year period ending on the sale date;
- Both spouses used the home as a principal residence for at least two years in the five-year period ending on the sale date; and
- Neither spouse had used the new exclusion on the sale of another residence within the two-year period ending on the date of the current home's sale.
Since this is such a big tax break, make sure you plan your home sale carefully to ensure that you qualify. This includes living in it for the required amount of time. Proper planning can save tens of thousands of tax dollars.