Publication 523 - Selling Your Home - 2003 Page 9
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31Repairs. These maintain your home in good condition but
Maximum Exclusion
do not add to its value or prolong its life. You do not add
their cost to the basis of your property.
You can exclude up to $250,000 of the gain on the sale of
your main home if all of the following are true.
Examples. Repainting your house inside or outside,
1) You meet the ownership test.
fixing your gutters or floors, repairing leaks or plastering,
and replacing broken window panes are examples of re-
2) You meet the use test.
pairs.
3) During the 2-year period ending on the date of the
Exception. The entire job is considered an improve-
sale, you did not exclude gain from the sale of an-
ment if items that would otherwise be considered repairs
other home.
are done as part of an extensive remodeling or restoration
If you and another person owned the home jointly but file
of your home.
separate returns, each of you can exclude up to $250,000
Recordkeeping. You should keep records to
of gain from the sale of your interest in the home if each of
prove your home’s adjusted basis. Ordinarily, you
you meets the three conditions just listed.
must keep records for 3 years after the due date
RECORDS
You can exclude up to $500,000 of the gain on the sale
for filing your return for the tax year in which you sold your
of your main home if all of the following are true.
home. But if you sold a home before May 7, 1997, and
1) You are married and file a joint return for the year.
postponed tax on any gain, the basis of that home affects
the basis of the new home you bought. Keep records
2) Either you or your spouse meets the ownership test.
proving the basis of both homes as long as they are
3) Both you and your spouse meet the use test.
needed for tax purposes.
4) During the 2-year period ending on the date of the
The records you should keep include:
sale, neither you nor your spouse excluded gain from
•
Proof of the home’s purchase price and purchase
the sale of another home.
expenses,
If either spouse does not satisfy all these requirements, the
•
Receipts and other records for all improvements,
maximum exclusion that can be claimed by the couple is
additions, and other items that affect the home’s
the total of the maximum exclusions that each spouse
adjusted basis,
would qualify for if not married and the amounts were
•
figured separately. For this purpose, each spouse is
Any worksheets you used to figure the adjusted ba-
treated as owning the property during the period that either
sis of the home you sold, the gain or loss on the
spouse owned the property.
sale, the exclusion, and the taxable gain,
•
Any Form 2119, Sale of Your Home, that you filed to
Ownership and Use Tests
postpone gain from the sale of a previous home
before May 7, 1997, and
To claim the exclusion, you must meet the ownership and
•
use tests. This means that during the 5-year period end-
Any worksheets you used to prepare Form 2119,
ing on the date of the sale, you must have:
such as the Adjusted Basis of Home Sold Worksheet
or the Capital Improvements Worksheet from the
1) Owned the home for at least 2 years (the ownership
Form 2119 instructions.
test), and
2) Lived in the home as your main home for at least 2
years (the use test).
Excluding the Gain
Exception. If you owned and lived in the property as your
main home for less than 2 years, you can still claim an
You may qualify to exclude from your income all or part of
exclusion in some cases. The maximum amount you can
any gain from the sale of your main home. This means that,
exclude will be reduced. See Reduced Maximum Exclu-
if you qualify, you will not have to pay tax on the gain up to
sion, later.
the limit described under Maximum Exclusion, next. To
qualify, you must meet the ownership and use tests de-
Example 1 — home owned and occupied for 3 years.
scribed later.
Amanda bought and moved into her main home in Sep-
You can choose not to take the exclusion by including
tember 2000. She sold the home at a gain on September
the gain from the sale in your gross income on your tax
15, 2003. During the 5-year period ending on the date of
return for the year of the sale. This choice can be made (or
sale (September 16, 1998 – September 15, 2003), she
revoked) at any time before the expiration of a 3-year
owned and lived in the home for 3 years. She meets the
period beginning on the due date of your return (not includ-
ownership and use tests.
ing extensions) for the year of the sale.
You can use Worksheet 2 to figure the amount of your
Example 2 —met ownership test but not use test.
exclusion and your taxable gain, if any.
Dan bought a home in 1997. After living in it for 6 months,
Page 9
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