Tax Consequences of Home Ownership
1. [LO 1] A taxpayer owns a home in Salt Lake City, Utah and a second home in St. George, Utah. The taxpayer sells the home in St. George at a gain. How does the taxpayer determine which home her principal residence is for purposes of qualifying for the exclusion of gain on the sale of a personal residence?
When a taxpayer lives in more than one residence during the year, the determination of which residence is the principal residence depends on the facts and circumstances. Factors to consider in making this determination include the amount of time the taxpayer spends at each residence during the year, the proximity of each residence to the taxpayer’s employment, the principal place of abode of the taxpayer’s family, and the taxpayer’s mailing address for bills and correspondence among other things.
2. [LO 1] What are the ownership and use requirements a taxpayer must meet to qualify for the exclusion of the gain on the sale of a residence?
Ownership test: The taxpayer must have owned the property for a total of two or more years during the five-year period ending on the date of the sale.
Use test: The taxpayer must have used the property as the taxpayer’s principal residence for a total of two or more years during the five-year period ending on the date of the sale.
Married couples are eligible for the married filing jointly exclusion amount if either spouse meets the ownership test and both spouses meet the principal use test.
3. [LO 1] Under what circumstances, if any, can a taxpayer fail to meet the ownership and use requirements but still be able to exclude all of the gain on the sale of a principal residence?
The taxpayer may be able to exclude the gain on the sale of a principal residence when she sells the home due to unusual circumstances such as a change in employment, significant health issues, or other unforeseen financial...