Q: How long does a senior have to live in his primary residence before he can sell it without paying income tax on the sale

A: the tax is capital gains. How to Figure Your Taxable Gain or Loss Worksheet—Continued pg 3

5. Determine your exclusion limit.

a. If you qualify for an exclusion (based on the Eligibility Test , earlier), there are fixed dollar limits on the amount of gain that can be excluded from taxes. If you only qualify for partial exclusion, the limit will be lower, and will depend on your situation.

If you met the Eligibility Test , earlier, follow these steps to determine your exclusion limit.

(1) If you are not married (or are married but filing a separate return), your exclusion limit is $250,000.

(2) If you own your home jointly with another person who is not your spouse, you and the other person each have an exclusion limit of $250,000. To qualify for this amount, you must each independently meet all parts of the Eligibility Test , earlier, except for the ownership requirement. See Determine whether you meet the ownership requirement , earlier. (Only one of you needs to meet the ownership test.)

(3) If you are married and filing jointly, the exclusion limit is usually $500,000. To qualify for this full amount, you must each independently meet all parts of the Eligibility Test , earlier, except for the ownership requirement. See Determine whether you meet the ownership requirement , earlier. (Only one of you needs to meet the ownership test.) If this is not the case, you will need to determine each spouse's individual limit (as if you were not married) and add them together to get your total exclusion as a couple. Generally, this situation will arise only if one person has lived in the home longer than the other, or if one spouse took an exclusion on a different home within the past 2 years.

If you owned your home jointly with your spouse and your spouse has died, your exclusion limit is $500,000, if ALL of the following are true.

Your spouse died no more than 2 years before the date of sale.

Neither you nor your spouse claimed an exclusion on another home during the 2 years before your spouse died.

You meet the 2-year residence requirement independently of your spouse.

You meet the 2-year ownership requirement (counting your spouse's ownership if you need to).

You have not remarried at the time of sale.

If ANY of these are NOT true, your exclusion limit is $250,000.

This is your exclusion limit a.

b. If you did not meet the Eligibility Test , earlier, but DO qualify for a partial exclusion, take the smallest of:

The number of days (or months, it you prefer) your home was your residence during the 5-year period leading up to the sale.

The number of days (or months) you owned the home leading up to the sale. (If you are married and filing jointly and your spouse owned the home longer than you did, use your spouse's ownership period.)

If you claimed an exclusion on another home within the last 2 years, the number of days (or months between the date when you sold the home and the date for which you now want to claim an exclusion).

Enter the smallest from above

Divide by 730 days (or 24 months); calculate to 3 decimal places. If the result is less than 1, enter the result. If the result is greater than 1, enter “1”

Multiply by $250,000

x 250,000

If you are not married and filing jointly, this is your exclusion limit b.

If you are married and filing jointly, repeat the entire calculation for your spouse, again using $250,000 as your spouse's reduced exclusion limit. Then add your spouse's reduced exclusion limit to your own.

c. If you are married and filing jointly, this is your exclusion limit c.

How to Figure Your Taxable Gain or Loss Worksheet—Continued pg 4

6. Determine your amount of exclusion.

a. Your gain eligible for exclusion (line 4c, or line 1a if you met both tests in line 2) a.

b. Your exclusion limit (line 5a, 5b, or 5c) b.

c. Your exclusion is the smaller of line 6a or 6b c.

A: Capital gain - Sale of Your Home

If you have a gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income. You may qualify to exclude up to $500,000 of that gain if you file a joint return with your spouse. Publication 523, Selling Your Home, provides rules and worksheets. Topic 409 covers general capital gain and loss information.

In general, to qualify for the exclusion, you must meet both the ownership test and the use test. You are eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale. You can meet the ownership and use tests during different 2-year periods. However, you must meet both tests during the 5-year period ending on the date of the sale. Generally, you are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home. Refer to Publication 523 for the complete eligibility requirements, limitations on the exclusion amount and exceptions to the two-year rule.

If you receive an informational income-reporting document such as Form 1099-S (PDF), Proceeds From Real Estate Transactions, you must report the sale of the home even if the gain from the sale is excludable. Additionally, you must report the sale of the home if you cannot exclude all of your capital gain from income. Use Form 1040, Schedule D (PDF), Capital Gains and Losses, and Form 8949 (PDF), Sales and Other Dispositions of Capital Assets, when required to report the home sale. Refer to Publication 523 for the rules on reporting your sale on your income tax return.

If you or your spouse are on qualified official extended duty in the Uniformed Services, the Foreign Service or the intelligence community, you may elect to suspend the five-year test period for up to 10 years. You are on qualified official extended duty if for more than 90 days or for an indefinite period, you are:

• At a duty station that is at least 50 miles from your main home, or

• Residing under government orders in government housing.