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The home sale tax exemption

Georgia residents who sell their primary residence will generally not be required to pay capital gains tax on the first $250,000 of profit generated by the sale. Spouses filing a joint return may exclude the first $500,000 gained from the sale of their home. The exemption may be applied to the sale proceeds of homes, condos, apartments and mobile homes.

However, to qualify for this tax exception, the individual or couple concerned must have owned and used the property as their primary residence for at least two years before selling it. The two years need not be consecutive, but both the use and ownership tests must be met. Periods of ownership or use that predate the sale of the property by five years or more cannot be used to satisfy the use and ownership tests. It is commonly believed that the gain from the sale of a home can only be excluded for tax purposes if it is applied towards the purchase of another home, but the IRS does not place any restriction on how these funds are used.

Those selling their primary residence may take advantage of the home sale tax exemption on multiple occasions, but it may only be claimed once during any two-year period. Real estate sale proceeds listed on Form 1099-S must be declared on a personal income tax return even if no taxes are required to be paid, and profits from the sale of a primary residence in excess of the exclusion amount will generally be subject to capital gains tax.

While the rules may seem straightforward, they could be confusing for individuals or couples who purchased a property that they had previously rented or rented out a property that they had previously lived in. Failing to meet the home sale tax exemption use or ownership tests will likely result in a serious financial blow, and an experienced tax attorney could provide guidance to ensure that these rules are fully understood.

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