Publication 554 - Older Americans' Tax Guide - 2002 Page 15
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29of time when your spouse owned and lived in it as a main
Sale of Home
home.
Home transferred from spouse. If your home was trans-
You may be able to exclude from income any gain up to
ferred to you by your spouse (or former spouse if the
$250,000 ($500,000 on a joint return in most cases) on the
transfer was incident to divorce), you are considered to
sale of your main home. If you can exclude all of the gain,
have owned it during any period of time when your spouse
you do not need to report the sale on your tax return.
owned it.
Maximum Amount of Exclusion
Use of home after divorce. You are considered to have
used property as your main home during any period when:
You can exclude up to $250,000 of the gain on the sale of
•
You owned it, and
your main home if all of the following are true.
•
Your spouse or former spouse is allowed to live in it
1) You meet the ownership test.
under a divorce or separation instrument.
2) You meet the use test.
3) During the 2-year period ending on the date of the
Business Use or Rental of Home
sale, you did not exclude gain from the sale of an-
other home.
You may be able to exclude your gain from the sale of a
home that you have used for business or to produce rental
You can exclude up to $500,000 of the gain on the sale
income. But, you must meet the ownership and use tests.
of your main home if all of the following are true.
See Publication 523 for more information.
1) You are married and file a joint return for the year.
Depreciation after May 6, 1997. If you were entitled to
2) Either you or your spouse meets the ownership test.
take depreciation deductions because you used your
home for business purposes or as rental property, you
3) Both you and your spouse meet the use test.
cannot exclude the part of your gain equal to any deprecia-
4) During the 2-year period ending on the date of the
tion allowed or allowable as a deduction for periods after
sale, neither you nor your spouse excluded gain from
May 6, 1997. See Publication 523 for more information.
the sale of another home.
Reporting the Gain
Ownership and Use Tests
Do not report the 2002 sale of your main home on your tax
return unless:
To claim the exclusion, you must meet the ownership and
•
use tests. This means that during the 5-year period end-
You have a gain and you do not qualify to exclude all
ing on the date of the sale, you must have:
of it, or
•
You have a gain and you choose not to exclude it.
1) Owned the home for at least 2 years (the ownership
test), and
If you have any taxable gain on the sale of your main home
that cannot be excluded, report the entire gain on Sched-
2) Lived in the home as your main home for at least 2
ule D (Form 1040). If you used your home for business or
years (the use test).
to produce rental income, you may have to use Form 4797,
Sale of Business Property, to report the sale of the busi-
Exception. If you owned and lived in the property as your
ness or rental part. See Publication 523 for more informa-
main home for less than 2 years, you still can claim an
tion.
exclusion in some cases. Generally, you must have sold
the home due to a change in place of employment or
health. The maximum amount you can exclude will be
Other Items
reduced. See Publication 523, Selling Your Home, for
more information.
The following items generally are excluded from taxable
income. You should not report them on your return.
Married Persons
Gifts and inheritances. Generally, property you receive
If you and your spouse file a joint return for the year of sale,
as a gift, bequest, or inheritance is not included in your
you can exclude gain if either spouse meets the ownership
income. However, if property you receive this way later
and use tests. (See Maximum Amount of Exclusion, ear-
produces income such as interest, dividends, or rents, that
lier.)
income is taxable to you. If property is given to a trust and
the income from it is paid, credited, or distributed to you,
Death of spouse before sale. If your spouse died before
that also is income to you. If the gift, bequest, or inheri-
the date of sale, you are considered to have owned and
tance is the income from property, that income is taxable to
lived in the property as your main home during any period
you.
Chapter 2 Taxable and Nontaxable Income
Page 15
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