NOTE:  This information is provided as a public service only.  Always consult a qualified tax professional before making any decisions which will affect your tax status.

Exclusion of gain from sale of principle residence

The new legislation completely replaces the "rollover" deferral of tax liability on home-sale profits.  It also terminates the $125,000 one-time tax-free "exclusion" on profits from sale of residence for home sellers 55 years or older.

The new legislation is a much simpler system.  It will allow the majority of taxpayers who sell their principal residences (provided they used the property as their principal residence for two of the prior five years) on or after May 7, 1997, to escape federal capital gains taxes on their profits.

The new law provides a formula to give partial exclusion to those who cannot satisfy the two-year requirement.

Married home sellers who file jointly will be able to take up to $500,000 in home-sale gains, tax-free, provided they use the property as their principal residence in two of the prior five years.  Taxpayers who file singly, will be able to take up to $250,000 of gain without capital-gains taxation.

Gain in excess of $500,000 will be taxed at the taxpayer's capital gains rate.

What about people who closed on a home sale before May 7, 1997?  They will be taxed according to the previous rules.

What about taxpayers over age 55 who have already used their "one-time $125,000 exclusion"?  They too will be free to make full use of the new law, provided they meet the two-year principal residence test.