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GOOD NEWS! The federal Taxpayer Relief Act of 1997 basically says the following when you sell your home:
1. If you are married and filing jointly, you can keep TAX FREE, capital gains of up to $ 500,000
2. If you are single or married taxpayers who file separately, you can keep TAX FREE, capital gains of up to $ 250,000
Naturally, as with any tax laws, there are rules you must meet to qualify for this benefit. The exclusion applies ONLY to your principal residence, which is the dwelling you spend most of your time. A vacation home does not qualify. Also, you must meet two additional tests: During the 5 year period ending on the date you sell your home, you must have:
1. Owned the home for at least 2 years (the ownership test) and
2. Lived in the home as your main residence for at least 2 years (the use test).
There are also exceptions where you may be able to take the exclusion even if you don't meet the ownership and use tests. You may be able to prorate the $ 500,000/$ 250,000 exclusion (not your specific gain) if unforeseen events such as job change, illness or some other hardship forced you to sell before you meet the two year residency requirement.
There is NO LIMIT on the number of times you can exclude the gain on the sale of your principal residence so long as you meet the ownership and use tests.
NOTE: This information is presented to you for your general understanding of the tax aspects on the sale of your principal residence. You are encouraged to speak with a qualified Tax Advisor about your specific facts and circumstances related to sale of your principal residence.
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