What are the tax consequences of the sale of a principle residence?
Generally, a gain on the sale of a principal residence is subject to tax. This tax is calculated by determining the amount realized on the sale (contract price minus selling costs) minus the cost of acquiring the home plus capital improvements to the home. If the home was held for more than one year, the gain is taxed as a long-term capital gain. There is an exemption from tax for taxpayers who have owned and lived in the home as their primary residence for two of the last five years before the sale. Single taxpayers can exclude up to $250,000 of the gain. Married taxpayers filing a joint return can exclude up to $500,000. This exclusion can be used once every two years. If a taxpayer sells his or her house for a gain and also qualifies for the exclusion, there is no reporting requirement. If a taxpayer sells his or her house for a gain and does not qualify for the exclusion, the taxpayer reports the gain as capital gain on Schedule D of Form 1040. If a taxpayer sells his or her house
