Sale of Your Home
If you have a gain from the sale or exchange of
your main home in 2006, you may be able to exclude from income up to $250,0=
00
of the gain ($500,000, for certain married taxpayers filing a joint return).
The exclusion may be allowed each time you sell or exchange your main home,=
but
generally no more frequently than once every two years. You cannot deduct a
loss from the sale of your main home.
If you sold your home under a contract that
provides for part or all of the selling price to be paid in a later year, y=
ou
made an "installment sale." (See below).
To be eligible for an exclusion, your home must
have been owned by you and used as your main home for a period of at least =
two
years out of the five years prior to its sale or exchange. The required two
years of ownership and use during the five-year period ending on the date of
sale do not have to be continuous. You can meet the ownership and the use t=
ests
during different two year periods. However, both tests must be met during t=
he
five-year period ending on the date of the sale or exchange. If you and your
spouse file a joint return for the year of the sale or exchange, you can
exclude up to $250,000 of gain if only one of you qualified for the exclusi=
on.
If you did not meet the
ownership and use tests, or if during the two-year period ending on the dat=
e of
the sale or exchange you sold or exchanged another home at a gain and exclu=
ded
all or part of that gain, you may be allowed to exclude a portion of the ga=
in
realized on the sale or exchange of your home if you sold or exchanged your
home due to a change in place of employment or health or unforeseen
circumstances.
Installme=
nt
Sales
An installment sale is a sale of property at a gain where at least one
payment is to be received after the tax year in which the sale occurs. You =
are
required to report the sale on the installment method unless you "elect
out" in the year of the sale. If you elect out, you report all the gai=
n as
income in the year of the sale. Installment sale rules do not apply to loss=
es.
You cannot use the installment method to report gain from the sale of inven=
tory
or stocks and securities traded on an established securities market.
Under the installment method, you include in income each year only part=
of
the gain you receive, or are considered to have received plus the interest.=
In general, interest should be charged on an installment sale. If inter=
est
is not charged or the interest rate is too low, the law states that there i=
s a
minimum amount of interest you, as a seller, are considered to have receive=
d.
This "imputed" or "unstated" interest is taxable.