More information on the non-carry-over feature of selling one's primary residence.
EXCLUSION REQUIREMENTS
IRC
section 121 allows a taxpayer to exclude up to
$250,000 ($500,000 for certain taxpayers who file a
joint return) of the gain from the sale (or exchange)
of property owned and used as a principal residence
for at least two of the five years before the sale. A
taxpayer can claim the full exclusion only once every
two years. A reduced exclusion is available to anyone
who does not meet these requirements because of a
change in place of employment, health or certain
unforeseen circumstances. Unlike under former law, the
gain on the sale of a house is now permanently
excluded, rather than deferred, and a taxpayer doesn’t
have to purchase a replacement home to exclude the
gain.
If a taxpayer
excludes the entire gain on the sale from
income, the transaction is not reported on his
or her tax return. If any part of the gain is
taxable, he or she reports the sale on
schedule D of form 1040. Alternatively, a
taxpayer can elect to include the gain from a
sale by reporting it on his or her tax return.
For example, someone who realizes gains on the
sale of two principal residences within two
years can exclude the gain on only one. Most
would want to recognize the smaller gain and
exclude the larger. Since the exclusion
applies automatically to the first
disposition, a taxpayer would need to elect to
be taxed on this one if it is the smaller of
the two.
- See more at:
http://www.journalofaccountancy.com/issues/2002/oct/thehomesalegainexclusion.html#sthash.n8AYZ0UA.dp...
