Nonqualified Use of Home and Home Sales

Generally, the sale of personal residence is not taxable if certain conditions are met.  Homes that have been used as a rental, vacation or second home as well as the taxpayer's primary residence are considered to have periods of "nonqualified use".  Taxpayers may not be able to exclude all the gain from the sale of a residence that has periods of nonqualified use.  Homes left empty while up for sale after the owner has moved to a new primary residence are also covered under the new rules.  The rules require gain be prorated based on usage.  This legislation went into effect on January 1, 2009.  Periods of nonqualified use prior to that date do not have to be included in the calculation.  We suggest taxpayers consult with a tax professional before selling a home that falls in one of these categories.