Magazine article The CPA Journal

Exclusion on Sale of Principal Residence Still Available without Two-Year Ownership

Magazine article The CPA Journal

Exclusion on Sale of Principal Residence Still Available without Two-Year Ownership

Article excerpt

By now, every accountant knows that the Taxpayer Relief Act of 1997 (TRA '97) changed the rules with regard to sales of residences. IRC section 121 now allows a taxpayer to exclude up to $250,000 ($500,000 for couples filing jointly) of gain on the sale or exchange of a principal residence.

To qualify, IRC section 121(a) requires a taxpayer to have owned and used the residence as a principal residence for perF ods aggregating two years or more during the five-year period preceding the date of sale or exchange of the residence. IRC change in health or place of employment. Under one of these conditions, the exclusion is prorated based upon a percentage calculated by using a fraction. The numerator of the fraction is the smaller of 1) the portion of the five-year period preceding the sale or exchange of the residence during which the taxpayer owned or used the residence as her principal residence or 2) the period since the last sale or exchange by the taxpayer. The denominator of the fraction is two years.

Nevertheless, TRA '97 sections 312(d)[(e)]j(2)-(4) provide special rules regarding IRC section 121. …

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