- House,
- Houseboat,
- Mobile home,
- Cooperative apartment, or
- Condominium.
Rules for Sales in 2003
You generally can exclude up to $250,000 of gain ($500,000, in most cases, if married filing a joint return) realized on the sale or exchange of a main home in 2003. The exclusion is allowed each time you sell or exchange a main home, but generally not more than once every 2 years. To be eligible, during the 5-year period ending on the date of the sale, you must have owned the home for at least 2 years (the ownership test), and lived in the home as your main home for at least 2 years (the use test).Exception to ownership and use tests. You can exclude gain, but the maximum amount of gain you can exclude will be reduced if you do not meet the ownership and use tests due to a move to a new permanent duty station.
5-year test period suspended. You can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse serve on qualified official extended duty as a member of the Armed Forces. This means that you may be able to meet the 2-year use test even if, because of your service, you did not actually live in your home for at least the required 2 years during the 5-year period ending on the date of sale.
Example. David bought and moved into a home in 1995. He lived in it as his main home for 2 1/2 years. For the next 6 years, he did not live in it because he was on qualified official extended duty with the Army. He then sold the home at a gain in 2003. To meet the use test, David chooses to suspend the 5-year test period for the 6 years he was on qualifying official extended duty. This means he can disregard those 6 years. Therefore, David’s 5-year test period consists of the 5 years before he went on qualifying official extended duty. He meets the ownership and use tests because he owned and lived in the home for 2 1/2 years during this test period.
Period of suspension. The period of suspension can-not last more than 10 years. You cannot suspend the 5-year period for more than one property at a time. You can revoke your choice to suspend the 5-year period at any time.
Qualified official extended duty. You are on qualified official extended duty if you serve on extended duty either:
- At a duty station at least 50 miles from your main home, or
- While you live in Government quarters under Government orders.
Claiming a refund for a prior-year home sale. This rule for suspending the 5-year period became law in 2003 but applies to any sale of a main home after May 6, 1997. Therefore, you may be entitled to claim a refund if this rule applies to you and you paid tax on a gain from the sale of a home after that date. If you are entitled to a refund, complete and file Form 1040X, Amended U.S. Individual Income Tax Return. At the top of Form 1040X, write “Military Family Tax Relief Act” in red.
Generally, you must file a claim for credit or refund within 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later. However, the deadline to file a claim based on this rule for 1997, 1998, 1999, or 2000 has been extended to November 10, 2004.
Property used for rental or business. You may be able to exclude your gain from the sale of a home that you have used as a rental property or for business. However, you must meet the ownership and use tests discussed in Publication 523.
Loss. You cannot deduct a loss from the sale of your main home.
More information. For more information on the laws affecting the sale of a home in 2003, see Publication 523.
Rules for Sales Before May 7, 1997
The rules in this section apply to you only if you sold your main home at a gain before May 7, 1997, and all three of the following statements are true.
1)You postponed the gain as described later.
2)The 2-year period you had to replace that home (your replacement period) was suspended while you served in the Armed Forces.
3)You have not already reported to the IRS either your purchase of a new home within your replacement period or a taxable gain resulting from the end of your replacement period, as described under What To Report Now, later.
Gain. If you had a gain from the sale, you had to include it in your income for the year of sale, except for any part you postponed or excluded.
Loss. If you had a loss from the sale, you could not deduct it.
