Principal Residences, Capital Gains and the IRS

Many clients ask me whether they should expect capital gains when they sell their home. My first advice is always to contact their tax advisor. However, I also do remind them of the principal residence exemption that the IRS allows

As the owner of a home, you can exclude from federal income tax the first $250,000 of profit (up to $500,000 if you are married) on the sale of your home.

To enjoy that tax benefit, you must meet a number of requirements. The most important is that you must have lived in the home as a primary residence for two of the last five years. When you sell your home, there is a form that you must complete for the IRS to report whether the primary residence exemption will apply or not.

And again, it’s always important to consult a tax advisor when preparing to sell any real estate so there are no unwanted tax surprises.