Capital Gains Exclusions

Real Estate

Capital Gains Exclusions

Determining your principal residence according to the IRS for tax purposes if you own more than one home can be tricky, but the IRS continues to refine the rules. First of all, principal residence can take many forms: conventional home, condominium, mobile home, house trailer, tenant-stockholder cooperative housing unit—even a boat, as long as it has sleeping, cooking and sanitary facilities (a bathroom).

The difficulties arise when you split your time between two different properties during a year. Simply put, the IRS says that your principal residence is the home you own and use as a residence for “a majority of the time during the year.”

But of course, there are other considerations. For instance:

l the location of your property in relation to your place of employment.

l the location where your family members reside.

l the address you use on your federal and state tax returns, driver’s license, automobile registration and voter registration card.

l the mailing address you use predominantly for bills and correspondence.

l the location of your banks.

l the location, believe it or not, of your “religious organizations and recreational clubs.”

 

In our market, many owners want to utilize an exchange to sell their property.  It is important to remember that an exchange can only be done on properties that are not classified as your primary residence, often this means it needs to have been a rental/income property for at least 2 of the last 5 years.  Does your property qualify?  This will mean important implications on your taxes at the time of sale.