KTADDITION
THE
Summer 2022 - 3
A Publication of Ketel Thorstenson, LLP
REFRESHER ON PRINCIPAL RESIDENCE GAIN EXCLUSION
Carrie Christensen, CPA, Manager, Tax Department period ending on the sale date. $500,000 exclusion if • Use Test: You must have used – Either you or your spouse the home as your principal pass the ownership test residence for at least two for the property and years out of the five-year – Both you and your period ending on the sale spouse pass the use test date. You can pass this test • If you are married and file by living in the house for 730 jointly, it is possible for days combined out of a fiveboth you and your spouse year period. The days do not to individually pass the need to be consecutive. ownership and use tests for two separate residences. In What Counts as a Principal this case, you and your spouse Residence? IRS regulations say would qualify for two separate you must evaluate all the facts $250,000 exclusions. Carrie Christensen, CPA, Manager, Tax Department and circumstances to determine whether or not a property is Special Rule for Unmarried With residential real estate your principal residence for gain Surviving Spouses - An unmarried markets surging, significant exclusion purposes. If you occupy surviving spouse can claim the unrealized gains are piling up more than one residence during larger $500,000 exclusion for for many homeowners. If you the same year, the general rule sale of a principal residence that are thinking about selling your is that the principal residence occurs within two years after the principal residence, you may for that particular year is the one spouse’s death, assuming all other be wondering about the tax where you spent the majority requirements were met immediately implications. The good news is of time during the year. Other before the spouse died. that tax laws allow you to exclude relevant factors can include: a home sale gain of up to $250,000 • Where you work Anti-Recycling Rule - The for unmarried taxpayers and up to • Where family members live exclusion is generally available $500,000 for married taxpayers. • The address used on your only when you have not excluded income tax return, driver’s an earlier gain within the twoGain Exclusion Basics license, auto registration, year period ending on the date and voter registration of the later sale. In other words, Ownership and Use Tests • Mailing address for bills you generally cannot recycle the To take full advantage of the and correspondence gain exclusion privilege until two principal residence gain exclusion, years have passed since you last you must pass two tests: the Special Considerations used it. You can claim the larger ownership test and the use if You are Married $500,000 joint-filer exclusion only test. Note that the two tests are if neither you nor your spouse completely independent, meaning • If you are married and file have used the exclusion on an that the periods of ownership separately, you and your spouse earlier sale within the two-year and use need not overlap. can potentially qualify for two period. If one spouse claimed separate $250,000 exclusions. the exclusion within the two-year • Ownership Test: You must have • If you are married and file window, but the other did not, the owned the home for at least jointly, you qualify for the exclusion is limited to $250,000. two years out of the five-year (Refresher on Principal Residence Gain Exclusion continued on page 4)
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