Taxpayers who sell their primary residence can exempt up to $250,000 ($500,000 if married filing jointly) of gain from their taxable income if they meet the following conditions:
- Must be the primary residence of the taxpayer claiming the exemption for 24 out of the 60 months prior to the sale- determined by the number of nights spent in it if taxpayer owns more than one home
- Must have owned the home for at least 24 out of the 60 months prior to the sale
- The home must not have been acquired in a like kind exchange
- Must not have taken the exclusion on another home in the prior two years
Gain is calculated by subtracting the basis (purchase price plus improvements) from the sales price.
If you do not qualify for the exclusion due to the time periods lived in or owned, you may be able to qualify for a partial exclusion if the reason you moved was due to health reasons, a job change, or other unforeseen events.
Any amounts of gain that do not qualify for the exclusion will be taxed as a capital gain. If there is a loss on the sale of a personal residence, that loss is disallowed for tax purposes.
I will assume that you are changing residencies from MN to AZ. This will likely mean that in the year of sale, you will also need to file a part year residence tax return in both states.
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