The 2017 tax filing season runs from January 29th with returns due no later than April 17th. This year brings two extra days to the tax file deadline. The additional time is not a gift but an adjustment due to the calendar days. In 2018, the traditional due date of April 15th falls on Sunday. The following Monday, Emancipation Day, is a legal holiday in the District of Columbia.  Since these are non-working days, the deadline was pushed back to April 17th.

Many taxpayers will examine their 2017 financial activities for qualifying tax breaks to enhance their return.  The homeowner who received a substantial gain from selling their house is hoping to keep some of that cash in their pocket. If the seller meets certain criteria, some or all of the profit from selling their home may be tax-free.

First or Second Home

The first condition is that the profit must come from the sale of the primary home. This is the main residence of the owner.  The homeowner spends most of her time at this location.  Even if someone owns two or more homes, one of the homes is the primary home.

Let’s say the owner divides her living space between two homes.  The home in the Midwest the residence during the summer. The house in the South is the residence during the winter.  Although both homes are considered to be the household of the owner, only one is the primary house.

When two homes are owned, the primary home is usually the location closest to family, school or work. This address is listed on important credentials, such as a driver’s license, passport, financial papers, tax return and other personal documents.

Three Conditions To Qualifying

If the sale yields a significant gain, you may qualify to exclude up to $250,000 (single filing) or $500,000 (married, filed jointly).  To determine eligibility, the seller must answer the ownership test and user test.

These tests state: During the time from the date of sale back 5 years:

  1. you owned the home for at least 2 years (ownership test)
  2. you lived in the home as your primary residence for 2 years (user test)

The third condition states:

  • during the last 2 years prior to the sale, you have not used the exclusion on another home

If all of the requirements are true, you may be able to use the exclusion. A profit that is not excluded must be included on the tax report.

A Quick Scenario

Susan, a single woman, sells her primary home on 5/15/17. The sale of the home provides a $300,000 profit for Susan. The 5 year period would be from 3/15/13 – 5/15/17. During that time, Susan owned the home and lived in the home as her primary residence for at least 2 years. She has not used the exclusion on another home in the past 2 years.

Therefore, as a single filing taxpayer, Susan may exclude up to $250,000 from the profit of the sale. If she excludes the first $250,000, then the remaining amount, $50,000 is reported as a capital gain and documented on Schedule D (Form 1040) of her tax report.

If Susan was married, she and her husband can qualify for the exclusion if, during the 5 year period for 2 years:

  1. at least one spouse is the owner of the primary home
  2. both spouses have lived in the home as their primary residence

They are also required to file jointly.

There are other circumstances where you may qualify for reduced exclusions. To get the most updated and detailed information see the information under the “Sale of Your Home” on the IRS website.