Home Sale Tax Breaks: Tricky to Compute

By: Benny L. Kass: REALTOR® Magazine Online
Homeowners typically are exempt from capital-gains taxes on a portion of their home-sale proceeds, but to be sure you compute your taxes correctly, it's a good practice to consult an attorney if you're unfamiliar with the exemption.

The exclusion for individual homeowners is $250,000, while married couples can avoid paying taxes on profits of up to double that amount. They can take the exclusion once every two years, but they must have resided in the home for no less than two of the last five years. Homeowners that meet certain criteria can get a partial exclusion, which is prorated by the number of days that the property was occupied. However, these homeowners must have sold their dwellings due to health problems, a job transfer that would have required them to travel 50 miles or more farther, or "unforeseen circumstances."

The Internal Revenue Service considers government condemnation, natural or man-made disasters, the death of one of the homeowners, unemployment, and divorce to be unforeseen circumstances, among others. Old rollover tax rules and substantial home-price gains due to appreciation can make the calculations even more complicated, so homeowners would be wise to consult a tax expert.