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taxpayer still qualify for the exclusion?

house in Johnstown. In February 2002, they

How could one spouse qualify and the other

the residence. Moving furniture and personal

moved to Erie and bought a new house. In

not?

belongings into a residence does not qualify as

The taxpayer may be able to exclude a portion of

August 2002, they sold their Johnstown home.

use. Even if the taxpayer’s family physically

the gain. Gain is determined separately on the

If a couple files a joint return and at least one

They owned and used the Erie home as their

occupied the residence, it is not the taxpayer’s

portion of the property used for residential pur-

spouse qualifies for the exclusion, they will both

principal residence until they sold it in June

principal residence if he or she did not occupy it.

poses and the portion of the property used for

qualify. However, if they file separate returns,

2005. They meet all the requirements for this

other purposes. The gain that is attributable to

then they each must qualify for the exclusion

Example: Bill and Helen purchased a home in

exclusion.

the property used for nonresidential purposes

individually.

Pittsburgh in January 2001, and Bill began work-

does not qualify for the exclusion.

However, if Rob and Ann sold their Johnstown

ing in Philadelphia in March 2001. He leased an

Example: If one spouse lived in an assisted-liv-

home in August 2003, they would not meet the

apartment there and commuted to Pittsburgh on

ing facility for the four years immediately pre-

What is a mixed-use property?

prior sale requirement for the Erie house’s exclu-

weekends, holidays and vacations. In January

ceding the sale of the residence and the other

sion. They owned and used their house for at

Examples of mixed-use property include the fol-

2005, they sold their Pittsburgh residence. Helen

spouse lived in the residence, the spouse that

lowing:

least two years during the five-year period pre-

meets the use and ownership requirement for

lived in the assisted-living facility does not qual-

ceding the sale, but they would have sold their

the exclusion, but Bill does not. He meets the

ify and must pay tax on his or her share of the

•

A sole proprietor’s residence above his retail

principal residence within two years of the sale of

ownership requirement, but does not meet the

gain. The best way to avoid this situation is to file

store;

their next principal residence.

use requirement. He only used his Pittsburgh

a joint PA income tax return.

home for three months in 2001. His principal

A duplex where the owner rents one unit and

•

What if a taxpayer meets the use and own-

If the requirements for the exclusion aren’t

residence was his apartment in Philadelphia. If

lives in the other; and

ership requirements, but sells his or her

met, how is gain reported?

they elect to file separate PA tax returns, Helen

principal residence within two years of sell-

•

An office or licensed daycare facility located

qualifies for the exclusion on her half of the gain,

Gain or loss is reported on PA Schedule D.

ing his or her next principal residence?

within a residence.

while Bill must pay PA personal income tax on his

The department supplies a worksheet that assists

The taxpayer will not qualify for the exclusion.

half of the gain. If they file jointly, since one

Mixed use also includes property where the land

in calculating a gain on the sale of a principal res-

However, if the principal residence is sold due to

spouse met the four requirements, they both

surrounding the residence is more than the tax-

idence and the taxable portion. The PA-19 work-

an unforeseen change in employment, health or

qualify for the exclusion.

payer reasonably needs for a residence. The land

sheet and instructions are available on the

severe financial hardship, a taxpayer could qual-

What if one of the homeowners die?

surrounding a farmhouse that the taxpayer uses

department’s website, ,

ify for the exclusion. An unforeseen change is

for commercial agriculture, livestock breeding or

or by calling 1-888-PATAXES.

one caused by accident, illness, loss of property,

The authorized representative of a decedent may

dairy purposes is not necessary for residential

casualty or another unexpected event beyond

not claim this exclusion on the final PA tax return

If a taxpayer sells a house and qualifies for

purposes.

of an otherwise qualifying decedent, unless the

the control of the taxpayer.

a full exclusion of the gain, is he required to

decedent closed the sale before death. The dece-

report any information on/with the PA-40

What if some time during the period a tax-

Example: If in the previous example Rob and

dent’s estate or trust may not exclude the gain

tax return?

payer owned a home, a portion of the resi-

Ann sold their principal residence in Erie because

on the sale of the decedent’s principal residence.

Ann’s employer relocated her to Williamsport,

dence was used as a business in the home?

If a taxpayer is eligible for Tax Forgiveness with-

they would qualify for the exclusion from the

What if the taxpayer sells the principal res-

If a taxpayer received or was entitled to a depre-

out reporting any gain from the sale of a princi-

two-year prior sale provision based on an unex-

idence on an installment basis?

ciation deduction for having an office in the

ple residence, he is required to include the gain

pected change in employment.

from the sale of the home on Line 8 in Part C of

home, for PA purposes or not, that portion of the

If the owner meets all four requirements, an

home does not qualify for the exclusion. A tax-

PA Schedule SP, Special Tax Forgiveness, in the

installment sale qualifies for this exclusion.

If a taxpayer owns more than one home,

determination of eligibility income. Otherwise,

payer that claimed and received allowable office-

which is the principal residence?

taxpayers qualifying for the full exclusion of the

What if a principal residence is a mixed-use

at-home depreciation may not exclude the gain

property (partly used for business, com-

on that portion of the principal residence. This

gain are not required to report or include any

The principal residence is the home that the tax-

mercial, industrial, rental, investment or

additional information or forms with PA-40

payer physically occupied and personally used

applies even if the taxpayer stopped claiming the

income tax returns.

other nonresidential purposes) – Could the

office-at-home expenses.

most during the five years preceding the sale of

Form Rev-625 Po - Sale Of Your Principal Residence And Pa Personal Income Tax Implications Page 2

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