Capital Gains Exclusion on Real Estate Sales of Main Home
Generally speaking, a capital gain occurs if you sell an asset for more than the adjusted basis, with the capital gain being the difference between the adjusted basis in the asset and the amount you realized from the sale. A capital gain can be realized from the sale of real estate. The Internal Revenue Code defines the complete set of rules regarding the taxation of capital gains.
You may qualify to exclude from your income all or part of any gain from the sale of your main home. Your main home is the one in which you live most of the time.
Ownership and Use Tests
To claim the exclusion, you must meet the ownership and use tests. This means that during the 5-year period ending on the date of the sale, you must have:
1. Owned the home for at least two years (the ownership test)
2. Lived in the home as your main home for at least two years (the use test)
If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).
You cannot deduct a loss from the sale of your main home.