If you own your home, but are getting ready to sell, there are some tax exclusions you may need to be aware of.

For sales of a principal residence, up to $500,000 of gain on a joint return ($250,000 on a single or separate return) can be excluded. To be eligible for the exclusion though, the residence must have been owned and occupied as your principal residence for at least two of the five years before selling.

The exclusion is available each time a principal residence is sold, but only once every two years. Special rules apply in the case of sales of a principal residence after a divorce and sales due to certain unforeseen circumstances.Selling Your Residence

If you as the taxpayer satisfy only part of the two-year ownership and use requirement, the exclusion amount is reduced on a pro rata basis. An example of this would be if a husband and wife file a joint return. They own and use a principal residence for 15 months and then move because of a job transfer. They can exclude up to $312,500 of gain on the sale of the residence (5/8 of the $500,000 exclusion).

Legislation enacted in 2008 modified the provisions affecting the exclusion of the gain. For sales or exchanges after December 31, 2008, a portion of the gain attributable to a period when the residence is not used as a principle residence will not be eligible for the exclusion. Periods of ineligible use prior to January 1, 2009, will not be considered.

For those who own appreciated rental property that you wish to sell in the future, you should consider moving into the property to convert it to your principal residence.

Again, you will need to live in the property for two of the five years preceding the sale of the property. As long as you haven’t sold another principal residence for the two years prior to the sale, a portion of the gain is excluded. Any gain attributable to prior depreciation claimed will be taxed at a 25-percent rate.

One more item to note is that the sale of a principal residence does not qualify for the exclusion if during the five-year period prior to the sale the property was acquired in a tax-free like-kind exchange.

This is just one of many taxable items which you may not be aware of when filing for last year, or even planning for your next tax filing. Our staff has a wide variety of experience and knowledge that can assist you with your accounting needs.

About Blackman & Sloop CPAs, P.A.:

Blackman & Sloop is a full-service CPA firm headquartered in Chapel Hill, North Carolina and is actively involved in auditing, taxation, management consulting, financial planning, and related services. The firm directs a large part of its services toward providing management with advice on budgeting, forecasts, projections, financing decisions, financial analysis, and tax developments. The firm also performs review and compilation services and prepares not-for-profit, corporate, individual, estate, retirement plan, and trust tax returns as well as technology consulting services regarding installation and training on QuickBooks. Blackman & Sloop provides services in Raleigh, Durham, Chapel Hill, RTP, Hillsborough, Pittsboro, Charlotte, and the rest of North Carolina. To find out more please visit http://www.blackmansloop.com

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