Capital gains on the sale of a home


February 08, 2004

Dear Mr. Azrael:

We purchased a house in Prince George's County on Jan. 15, 1999, for $65,000. On Feb. 2, 2001, we went to settlement on our current residence and [use] it as a primary residence.

At that time, the Prince George's house became a secondary residence. On Aug. 28, 2003, we sold the Prince George's house for $142,000.

How should we treat the sale of the house for tax purposes?

Dan and Penny McGrath Berlin

Dear Mr. and Mrs. McGrath:

You are allowed to exclude gain on the sale of your home if you lived in the property as your main home for at least two years during the five-year period ending on the date of sale.

You owned and lived in your Prince George's County home from Jan. 15, 1999, to Feb. 2, 2001. This period of time was more than two years and ended Aug. 28, 2003 - within five years of the sale date. You meet both the ownership and use tests. You can exclude the entire gain on the sale up to $500,000 if you are married and file a joint return, and if during the two-year period ending on the date of the sale, neither of you excluded gain on the sale of another home.

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