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kevinchh
Level 1

How does IRS calculate 2 years as primary residence for tax exemption

I want to sell my primary residence next year and want to see if I qualify for the $500,000 tax exemption when I file my 2022 year's taxes. I filed my 2020's taxes at this address and will file 2021 at this address as well. If I sell the property in 2022, would I qualify for the tax exemption?

5 Replies
DanPaul02
Level 7

How does IRS calculate 2 years as primary residence for tax exemption

The rule goes exactly by the date that you moved in and the date that you moved out.  To qualify for the tax exemption, you have to have lived in the house for a full 24 months, regardless of when you filed tax returns.

macuser_22
Level 15

How does IRS calculate 2 years as primary residence for tax exemption

If you and your spouse own and physically occupied the home for 2 of the last 5 years then you qualify.     You determine that, not the IRS.   Lying on your tax return is a Federal felony.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
macuser_22
Level 15

How does IRS calculate 2 years as primary residence for tax exemption


@DanPaul02 wrote:

The rule goes exactly by the date that you moved in and the date that you moved out.  To qualify for the tax exemption, you have to have lived in the house for a full 24 months, regardless of when you filed tax returns.


Not quite correct.  It is any 24 months of the previous 5 years.  The date you moved in and moved out is irrelevant as long as it is 2 years in the last 5 years (you might have lived in it for 2 years and then rented it out for 3 years)

 

See IRS Pub 523, page 3.

 

https://www.irs.gov/pub/irs-pdf/p523.pdf

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
Mike9241
Level 15

How does IRS calculate 2 years as primary residence for tax exemption

further guidance. either spouse can own the home for 2 out of the 5 years ending on the date of sale but both must have occupied it as their principal residence for the 2 out of 5 years ending on the date of sale.  there is a frequency limitation so, during the two-year period ending on the date of sale, neither spouse excluded gain from the sale of another residence. for the occupancy test the two-year period does not have to be the same for each spouse. for the ownership test treat both spouses as owning the property for the longest period owned by either spouse.

 

Carl
Level 15

How does IRS calculate 2 years as primary residence for tax exemption

You must have lived in the property as your primary residence for 730 days or more, of the last 1826 days you owned it, counting back from the closing date of the sale.

IRS Publication 523 at https://www.irs.gov/pub/irs-pdf/p523.pdf on page 3, 2nd column under "Eligibility Step 3 - Residence". (Make sure you read all the steps, as if you meet Step 1 for automatic disqualification, you can stop there)

 

 

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