Spouse in Armed Forces. If your spouse is in the Armed Forces and you are not, the suspension also applies to you if you owned the old home. Both of you must have used the old home and must use the new home as your main home. However, if you are divorced or separated while the re-placement period is suspended, the suspension ends for you on the date of the divorce or separation.
Home not replaced within replacement period. If you do not replace the home in time and you had postponed gain in the year of sale, you must file an amended return for the year of sale. You must include in your income the entire gain on the sale of your old home. For details, see What To Report Now, later.
Occupancy test. You must physically live in the new home as your main home within the replacement period. If you move furniture or other personal belongings into the new home but do not actually live in it, you have not met the occupancy test.
No added time is allowed. To postpone gain on the sale of your home, you must replace the old home and occupy the new home within the specified period. You are not allowed any additional time, even if conditions beyond your control keep you from doing it. For example, destruction of the new home while it was being built would not extend the replacement period.
Adjusted sales price. This is the amount realized from the sale of your old home minus:
- Any one-time exclusion you claimed (line 14 of Form 2119), and
- Any fixing-up expenses you had (line 16 of Form 2119).
Fixing-up expenses. Fixing-up expenses are decorating and repair costs that you paid to sell your old home. For example, the costs of painting the home, planting flowers, and replacing broken windows are fixing-up expenses. Fixing-up expenses must meet all the following conditions. The expenses:
- Must be for work done during the 90-day period ending on the day you sign the contract of sale with the buyer,
- Must be paid no later than 30 days after the date of sale,
- Cannot be deductible in arriving at your taxable in-come,
- Must not be used in figuring the amount realized, and
- Must not be capital expenditures or improvements.
Property used partly as your home and partly for business or rental. You may use part of your property as your home and part of it for business or to produce income. If you sell the entire property, you should consider the transaction as the sale of two properties. You postpone the gain only on the part used as your home. This includes the land and outbuildings, such as a garage for the home, but not those used for the business or the production of income.
To postpone the gain on the part of the property that is your home (one property), you must reinvest an amount equal to that part’s adjusted sales price in your new home. The same rule applies if you buy property for use as your home and for your business. Only the purchase price for the part used as your home can be counted as the cost of a new home. See New home used partly for business or rental, later.
For an example of how to divide the gain between the part of the property used as your home and the part used for business or other purposes, see Business Use or Rental of Home in Publication 523.
Home changed to rental property. You cannot postpone tax on the gain on rental property, even if you once used it as your home. The rules explained in this publication generally will not apply to sale of rental property. Gains are taxable and losses are deductible as explained in Publication 544.
Temporary rental of home before sale. You have not changed your home to rental property if you temporarily rented your old home before selling it, or your new home before living in it, as a matter of convenience or for another nonbusiness purpose. You postpone the tax on the gain from the sale if you meet the requirements explained earlier.
For information on how to treat the rental income you receive, see Publication 527.
