Get Regulation 105235-99 - Exclusion Of Gain From Sale Or Exchange Of A Principal Residence. Proposed

ing to the 2-out-of-5-years rule, property that you lived in for at least two out of the last five years counts as a primary residence, even if you have considered it a vacation rental.

Exceptions to the 2-out-of-5-Year Rule You might be able to exclude at least a portion of your gain if you lived in your home less than 24 months but you qualify for one of a handful of special circumstances such as a change in workplace, a health-related move, or an unforeseeable event.

The two-out-of-five-year rule states that an owner must have owned the property that is being sold for at least two years (24 months) in the five years prior to the sale.

Qualifying for the Exclusion You're eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale. You can meet the ownership and use tests during different 2-year periods.

An individual has only one main home at a time. If you own and live in just one home, then that property is your main home. If you own or live in more than one home, then you must apply a "facts and circumstances" test to determine which property is your main home.

For example, you can live in your home for a year, rent it out for three years, and then move back in for a year before the sale, and it will still qualify as a primary residence under IRS guidelines.

You can sell your primary residence and avoid paying capital gains taxes on the first $250,000 of your profits if your tax-filing status is single, and up to $500,000 if married and filing jointly. The exemption is only available once every two years. But it can, in effect, render the capital gains tax moot.