Everything you need to know about when the sale of a home is tax-free:
The reason for this rule is obvious: Congress anticipated that when a couple marries, one spouse may already own a home, and in many cases, the home isn't re-titled into joint ownership. Thus, only one spouse needs to own the property, though both must pass the use test.In our example, H owned the home from 2015-2020. H&W used the home for two of the five years preceding the sale . Neither spouse used Section 121 in 2018 or 2019.
Rule #6: When one spouse dies, the other can count the period of time the deceased owned and used the home. H has owned and used a house as his principal residence since January 1, 2015. On January 1, 2018, W married H and moved into the house, but the house remained in H’s name only. H died on December 31, 2018. After H’s death, the home passes to W. In 2019, W sells the home.
Hey look, help for your ol' man! H did not use the property for two of the five years preceding the sale H, however, is treated as using the house during the period W used the property because 1) H allowed W to use the house incident to their divorce, and 2) W used the house as her personal residence during that time. Thus, H satisfies the ownership test and the use test and is entitled to a $250,000 exclusion.Ex. 10.
attributable to periods after May 6, 1997, in respect of such property." In other words, any prior depreciation is"pulled out" of the gain eligible for exclusion and must be recognized as unrecaptured Section 1250 gain. shall not apply to so much of the gain from the sale or exchange of property as is allocated to periods of nonqualified use." So what is"nonqualified use?" It's any period after 2008 during which the home is NOT used as a principal residence.
Did the suitability of the property as your principal residence materially change because of the circumstances?
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