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Homeowners Tax Breaks Yor complete Guide to finding hidden gold in your home - Lassers J.K.

Lassers J.K. Homeowners Tax Breaks Yor complete Guide to finding hidden gold in your home - Wiley Publishing, 2004. - 258 p.
ISBN 0471444332
Download (direct link): lassershomeownerstaxbreaks2004.pdf
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We’ll start with a discussion of whether the ownership and use of your home have to be concurrent and the effect of short absences from your home. Then we’ll move on to the relief you can get from the holding-period requirements if the sale of your home is caused by a job move, health needs, or other unforeseen circumstances; the special rules for the $500,000 exclusion for married couples; what makes a residence a “principal residence”; and the limitation on the exclusion where part of your property is used for nonresi-dential purposes.
You Don’t Have to Own and Use at the Same Time. Ownership and use need not be concurrent, so long as both the ownership and use requirements are met during the five-year period ending on the date of sale. In other words, as long as there are two years of ownership and two years of use during the five years ending on the date of sale, such ownership and use may have occurred during different periods.
The IRS has illustrated this rule with an example.
74 TAX SHELTER WHEN YOU SELL YOUR HOME
Taxpayer C lives in a townhouse that he rents from 1993 through 1996. On January 18, 1997, he purchases the townhouse. On February 1, 1998, C moves into his daughter’s home. On May 25, 2000, while still living in his daughter’s home, C sells his townhouse. The exclusion will apply to gain from the sale because C owned the townhouse for at least 2 years out of the 5 years preceding the sale (from January 19, 1997, until May 25, 2000) and he used the townhouse as his principal residence for at least 2 years during the 5-year period preceding the sale (from May 25, 1995, until February 1, 1998).
Short Absences. While occupancy of the residence is required for the “use” requirement to be met, short temporary absences, such as for vacation, are counted as periods of use. This is so even though the absence is accompanied by rental of the residence. Under these rules, a year-long sabbatical is not considered a short temporary absence, but a two-month vacation is treated as a short period of absence.
The IRS has illustrated these rules with two examples.
Taxpayer D, a college professor, purchases and moves into a house on May 1, 1997. He uses the house as his principal residence continuously until September 1, 1998, when he goes abroad for a one-year sabbatical leave. On October 1, 1999, one month after returning from the leave, D sells the house. Because his leave is not considered to be a short temporary absence, the period of the sabbatical leave may not be included in determining whether D used the house for periods aggregating two years during the five-year period ending on the date of the sale. Consequently, D is not entitled to exclude gain because he did not use the residence for the requisite period.
Taxpayer E purchases a house on February 1, 1998, that he uses as his principal residence. During 1998 and 1999, E leaves his residence for a two-month summer vacation. E sells the house on March 1, 2000. Although, in the five-year period preceding the date of sale, the total time E used his residence
HOW TO SELL YOUR HOME WITH NO TAX ON GAIN
Example 2 (Continued)
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is less than two years (21 months), the exclusion will apply to gain from the sale of the residence because the two-month vacations are short temporary absences and are counted as periods of use in determining whether E used the residence for the requisite period.
Don’t Get Trapped by Two-Year Waiting Period Rule. You have to be careful not to get trapped by the two-year waiting period rule. An IRS example shows how easy it is to run afoul of this rule.
Taxpayer A owns a townhouse that he uses as his principal residence for two full years, 1998 and 1999. A buys a house in 2000 that he owns and uses as his principal residence. A sells the townhouse in 2002 and excludes the gain. A sells the house in 2003. Although A meets the two-year ownership and use requirements, A is not eligible to exclude gain from the sale of the house because A excluded gain within the last two years from the sale of the townhouse.
Condo and Co-ops
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The exclusion is available to owners of condos and co-op apartments to the same extent it applies to owners of single-family houses.
For co-ops, the ownership requirement applies to the stock that tenant-stockholders own in their cooperative housing corporations rather than to a house or condo, and the use requirement applies to their apartment in the co-op.
4.5 Exceptions to the Two-Year Rule: Job Change,
Health Problems, or Unforeseen Circumstances
Suppose you can’t meet the two-year ownership and use requirements or the two-year waiting period requirement because of a job change, health problems, or other unforeseen circumstances. You still may be able to get the benefit of part of the exclusion if you qualify for special “hardship relief.”
TAX SHELTER WHEN YOU SELL YOUR HOME
If you miss meeting either the two-year ownership and use requirements or the two-year waiting period requirement because of a change in place of employment, for health reasons, or for certain other unforeseen circumstances, you can use a fraction of the $250,000 (or $500,000) exclusion otherwise allowable. The amount of the reduced exclusion allowed generally is based on the portion or fraction of two years you meet the requirements. Specifically, the reduced exclusion is figured by multiplying the maximum dollar limitation of $250,000 (or $500,000) by a fraction. The numerator of the fraction is the shortest of:
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