Exceptions to Home Sale Gain Exclusion Rules
The IRS has a number of exceptions to the standard home sale gain exclusion rules. Learn more about various circumstances that may apply to your situation as you continue reading:
Recognition Of Gain Attributable To Depreciation
The exclusion doesn’t apply to that part of the gain from the sale of any property that doesn’t exceed the portion of the depreciation adjustments (under §1250(b)(3)) for periods after 05/06/97. Thus, a taxpayer recognizes gain to the extent of any depreciation allowable with respect to the rental or business use of the principal residence for periods after 05/06/97.
Denial Of Exclusion To Expatriates
The exclusion doesn’t apply to any sale by an individual to whom the rules related to expatriation to avoid tax apply.
Election Out Of The Exclusion
The exclusion does not apply to any sale if the taxpayer elects out. This could be an advantage where a taxpayer has owned and used two residences as principal homes at different times during the five year period prior to sale and plans to sell both of the residences within two years of each other. If the sale of one residence would generate a smaller gain than the other, the taxpayer may want to elect out of the exclusion for the sale of the residence with the smaller gain in order to preserve the benefits of the exclusion for the other sale.