The Buyer Advantage ®

Note: You can take advantage of this tax exemption every 2 years.

When you sell a stock, you owe taxes on your gain, the difference between what you paid for the stock and what you sold it for. The same is true with selling a home (or a second home), but there are some special considerations. What you paid for the home includes not only the original price, but also the cost of many improvements, so hold on to your receipts!

A special real estate exemption for capital gains

Since 1997, up to $250,000 in capital gains ($500,000 for a married couple) on the sale of a home is exempt from taxation if you meet the following criteria:

• Owned the home for at least 2 years.
• Lived in the home as your main home for at least 2 of the past 5 years.*

Also note that as of 2003, you may also qualify for this exemption if you meet what the IRS calls "unforeseen circumstances" such as job loss, divorce, or family medical emergency.

* This may not apply if you are a member of the uniformed services or Foreign Service.

For details see IRS Publication 523.

The partial list below is from IRS Publication 523. Some of the items may surprise you:

• Additions to your home, including: Deck, Porch, & Patio
• Heating & Air Conditioning: Furnace, Duct Work, Central humidifier
• Lawn & Grounds: Landscaping, Fence, Sprinkler system, Swimming pool
• Plumbing: Water heater, Filtration system
• Interior Improvements: Kitchen modernization, Flooring, Wall-to-wall carpeting
• Miscellaneous: Satellite dish, Security system, New roof

I recommend that you get a copy of IRS Publication 523 and read through it. After all, it is your money!