Builders and Contractors Exchange
Weekly Bulletin: 14 Mar 2008
New Addition to the Internal Revenue Code May Provide Significant Tax Benefits To Taxpayers Who Are Selling Their Homes
A new addition to the Internal Revenue Code may provide significant tax benefits to taxpayers who are selling their homes. Internal Revenue Code section 121 provides that a taxpayer may exclude from gross income the gain that taxpayer realizes on the sale of property which has been used as taxpayer's principal residence. In order to qualify for this exclusion, the taxpayer must have used the property as his or her principal residence for at least two of the five years which precede the sale of the property. The use of the property for two of the five preceding years need not be consecutive. If taxpayer does not meet the "two of five year" requirement, he or she may still be able to take advantage of the income exclusion, either in whole or in part, if he or she can show that certain mitigating circumstances prevented taxpayer from using the property as his or her principal residence for the required period of time.
To fall within the requirements of section 121, the taxpayer must show that the property was used as his or her principal residence. Principal residence is determined by analyzing all of the facts and circumstances regarding the taxpayer's occupancy of the property. Those factors which are helpful in establishing that the property was used as taxpayer's principal residence include: 1) The taxpayer's place of employment; 2) The principal place of abode of the taxpayer's family members; and, 3) The taxpayer's mailing address for bills and correspondence.
To the extent that the above requirements are met, taxpayer may exclude from his or her gross income, for the tax year in which the property was sold, up to $250,000.00 of gain from the sale of the property if taxpayer is filing singly; or, up to $500,000.00 of gain if taxpayers are married filing jointly.
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This article is meant to bring awareness to this topic and is not intended to be used as legal advice.