There are numerous tax advantages to home ownership.  One of the advantages is the included in the Taxpayer's Relief Act of 1997.  Previously the Tax Code allowed for a once-in-a-lifetime capital gain exclusion.  The Taxpayer's Relief Act of 1997 changed that rule to benefit homeowners who have accumulated equity in there homes and wish to move to either a larger or smaller home.  Unlike the previous rules, there is no age requirement to qualify.  However, this is great news for seniors who are considering downsizing or trading using their equity to buy a smaller home and a second home.

• For couples who file a joint tax return, there is an exclusion of $500,000 of gain on the sale of a principle residence.
• For single taxpayers there is an exclusion of up to $250,000 of gain on the sale of a principle residence.
• Now that's big news for taxpayers who want to sell their homes and pull out the equity in the form of cash!

Here are some simple guidelines to see if you may qualify:

The principle residence must have been used for at least 2 of the past 5 years. (In the case of married couples, it must have been used by both spouses for 2 of the past 5 years.)  The 2 years do not need to be consecutive time periods.

Note:  Great news - there is no limit to how many times the exclusion may be used.  So, during an "up market", you could conceivably move and pull out gain on the sale of your principle residence every two years---if you don't mind moving that often.

Sorry - the exclusion does not apply to vacation or second homes.  But, if you are able to move into that vacation home for a few months each year, you could still qualify for the exclusion and meet the 2 years out of every 5 year rule.

The IRS has built in some additional ways to qualify if you need to sell yur home before the two year qualification can be met.  If you have a change in employment that requires you to move, health issues or other unforeseen circumstances (See Internal Revenue Code 121 for complete information).

The foregoing information is provided to whet your appetite and not to be considered as legal or tax advice.  Please consult your tax professional and www.IRS.gov for more detailed information  - See Publication #523 

It's my pleasure to provide my clients with information to assist them in making informed decisions when contemplating buying and selling homes in Orange County, California. If you have questions and would like some honest answers or need more resources, please give me a call, text me or email me.

Marlene Bridges, REALTOR®

800 777-1775 - Toll Free  ~ or ~  Text Me 714 745-2592

Orange County Real Estate Website

Orange County Seniors Lifestyles Blog

 SRES - Seniors Real Estate Specialist®

CRS-Certified Residential Specialist®

President - Laguna Hills/Laguna Woods Chamber of Commerce 2007-2009

Marlene is a highly experienced and respected South Orange County CA REALTOR® specializing in residential Real Estate and the sale of Homes and Condos in South Orange County, California and Saddleback Valley cities of: Laguna Woods, Laguna Hills, Laguna Niguel, Laguna Beach, Rancho Santa Margarita, Lake Forest, Dana Point, San Juan Capistrano, San Clemente, Aliso Viejo, Mission Viejo.