Myth and Reality: Sale of Home Profits Taxed or Not?

Myth: If I sell my home for more than I paid for it, I have to reinvest the proceeds in a new home with a certain time to get the most favorable tax treatment.

Reality: Wrong. Congress erased that law in the late 1990s.

If you sell your primary residence, you typically can exclude a gain of as much as $250,000 if you're single, or as much as $500,000 if you're married and filing a joint return. To qualify for the full exclusion, you must have owned the home -- and lived in it as your primary residence -- for at least two of the five years prior to the sale. Even if you can't meet these tests, you still might qualify for a partial exclusion if you had to sell for certain reasons, such as a job change or health.

Congress recently made another change that may help some widows and widowers. Under the new law, a surviving spouse who hasn't remarried still may qualify for the up to $500,000 exclusion if the sale of the home occurs not later than two years after the spouse's death, says Robert Trinz, senior tax analyst the Thomson Tax and Accounting in New York. This change, which became effective on sales or exchanges beginning this year, gives the surviving spouse more time to sell.

~~ from the Wall Street Journal

As always, consult with your tax advisor regarding the tax consequences for you and your particular situation. We are not tax advisors, and always recommend that you consult with qualified professionals regarding tax advice.