Waiting it out to close on home
 

Waiting it out to close on home
Tax Talk by George Saenz • Bankrate.com

Dear Tax Talk,
My husband and I purchased our home on Aug. 26, 2003. We are now
selling, and purchasing another home. We have arranged for the
closings on both homes to be Aug. 26, 2005 (one in the morning, one in
the afternoon) to avoid paying capital gains tax. Recently I heard
that we do not have to wait until the exact date of the two-year
anniversary to close, as long as we are closing in the month that the
two-year mark is hit. Is this true? Can we move up our closing dates
to earlier in August? Thank you.
-- Denise

Dear Denise,
Stick with your scheduled closings. The general rule is that an
individual can exclude up to $250,000 in gain from the sale of their
principal residence, married couples get up to $500,000 in exclusion.
To qualify, you have to have owned and used the home as your principal
residence for a period of two years within the last five years. The
two years do not have to be consecutive, but rather can be cumulative
within the five-year period. The regulations specifically spell out
that two years means 24 full months or 730 days. You can count days as
used when you are temporarily absent from the home such as on vacation
or in the hospital.

Since you will have owned the home for just the requisite period, you
should be careful that you can demonstrate that you actually occupied
the home as your principal residence on the days you closed the
purchase and the sale. In other words, just because you owned the home
for two years doesn't mean that you automatically meet the use test,
unless you are a fast mover.

http://www.bankrate.com/nltrack/itax...20050726a1.asp


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