Home Sale Ownership and Use Tests
Home sale ownership and use tests allow taxpayers to determine if they are eligible for the home sale exclusion. IRS criteria can be found below.
To claim the exclusion, the taxpayer must meet the ownership and use tests. This means that during the 5-year period ending on the date of the sale, the taxpayer must have:
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Owned the home for at least 2 years (the ownership test), and
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Lived in the home as the taxpayer's main home for at least 2 years (the use test).
The requirements of ownership and use for periods aggregating 2 years or more may be satisfied by establishing ownership and use for 24 full months or for 730 days (365 x2). (Reg. §1.121-1(c))
Special Rule for Decedents Dying in 2010
If a decedent’s estate or heir sells the decedent’s principal residence, $250,000 of gain can be excluded provided the decedent met the two-out-of-five years use and ownership requirements. In addition, if an heir occupies the property as a principal residence, the decedent’s period of occupancy and ownership can be added to the heir’s when determining if the Sec 121 requirements have been met.