Home sale: maximum life time exclusion $500,000 each time or culumative of $500,000?

Question

Can you help clearify what the maximum lifetime exclusion on home salemeans?
Does it mean a $500,000 maximum exclusion each time there home
sale or does it mean up to a total of $500,000 maximum exclusion for all of the home sales combined?

Answer 1

It's not a lifetime exclusion, it's a per occurrence exclusion.

You actually only get a $250,000 exclusion, but if you own it jointly (or file a joint return), then that other person also gets to exclude up to $250,000, thereby giving married filing joints a $500,000 exclusion on the GAIN of a sale of primary residence. In order to qualify for the exclusion on the gains, you must meet the following criteria:


1). Own the residence during the time you lived in it
2). Occupy the residence 2 years out of 5 (they need not be consecutive, in fact, you could live in it 6 months every year and that will qualify).

Also, don't forget, this only applies to the gain from the sale. There are many things you might have done to the house to increase your basis in it, thereby reducing your gains. Say you bought the house in 1980 for 150,000 and now you just sold it for 750,000 - a 600,000 gain. Well that extra 100,000 would be taxable (or extra 350,000 if you're single), but, say you added a room to the house for 25,000 in 1999 and replaced the roof in 2003 for 20,000. You can add those to the basis, giving you a basis of 195,000, and reducing your gain to 555,000 - now only 55,000 is taxable.

Check with IRS publication 523 for more information.

Answer 2

It's not a lifetime exclusion. If you sell your current home for a profit of $499,000 then it will be tax free. If you purchase another home, live in it for 3 out of 5 years and sell it, you will have another $500K profit that would be tax free.

Answer 3

The 2 answers before me said it all!