IRS Issues Rules for Home Sale Exclusion

January 08, 2003Articles The Legal Intelligencer

Section 121 of the Internal Revenue Code, enacted as part of the Tax Reform Act of 1997, allows a taxpayer to exclude up to $250,000 ($500,000 for married couples filing joint returns) of gain realized on the sale or exchange of the taxpayer's principal residence.

To be eligible for this exclusion, the taxpayer must have owned and used the property as a principal residence for at least two years during the five-year period ending on the date of the sale or exchange. The Section 121 exclusion is not available if, within the two-year period ending on the sale date, there was another sale or exchange of a principal residence by the taxpayer to which the exclusion applied.