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Homeowners' Exclusion Previously, homeowners could deduction up to $250,000 ($500,000 MFJ) of gain on the sale of their principal residence if they owned and occupied it as such during 2 of the previous 5 years before the sale. Starting in 2009, the gain must be prorated between the times the home was their principal residence and not, if that non-principal time occurred before or during the principal residence time. For example, a owner who lived 10 years in his home, then moved out and sold the next year (or three) can use the full exclusion. But an owner who converted his one-year owned vacation home into a principal residence and then lived there for 3 years before selling, cannot claim the full 2 out of 5 year exclusion. So 1/4 of the gain is taxable, 3/4 of the gain is eligible for the exclusion. Military enlistment up to 10 years, temporary or medical absences, and periods before January 2009 do not count in the calculation of non-principal use.
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Housing Act
See this page for first-time homebuyer's credit and real estate deduction information.
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| Mortgage Forgiveness Debt Relief Homeowners who are forgiven their mortgage debt on their primary residence are excluded on paying tax on the cancellation of debt up to the amount of the outstanding acquisition loan (but not on an equity loan). This law has now been extended through 2010. |