New IRS Rules on home sales hold good news for taxpayers The IRS has issued new rules clarifying the circumstances under which taxpayers can sell a home and not be taxed on the profit. You are probably familiar with the tax law that lets you sell your home and exclude from taxation up to $250,000 of profit if you are single and $500,000 if you are married and file a joint return. To be eligible for this break you must have owned and occupied the home for at least two of the five years prior to its sale.   Definition of principal residence. The new rules define principal residence for those taxpayers with more that one home. The home that will qualify as your principal residence eligible for the gain exclusion is the home where you spend the majority of your time during the year. Other factors considered relevant in determining which home is your principal residence include your place of employment; where family members live; the address you give on tax returns, your driver’s license, and your voter registration; your mailing address; and the location of your bank, church, and club memberships.   Sale of vacant land The new rules state that the exclusion of gain can be applied to the sale of vacant land adjacent to your home which you used as part of your principal residence. The home must be sold within two years before or after the land sale.   Part business, part personal The rules also change how a home sale is treated when a taxpayer has claimed deductions for a home office. Prior to the newly issued rules, the sale had to be divided into a business portion and a personal portion. Gain from the business portion did not qualify for the exclusion. Now, if you sell a home used partly for business, you will pay tax on gain to the extent of depreciation claimed after May 6, 1997, but you can exclude and additional gain up to the maximum exclusion allowed. If your home office is in a separate building from your home, it will not qualify for the exclusion.   Partial Exclusion clarified Under the tax law, you may qualify for a partial exclusion of gain if unforeseen circumstances force you to sell your home before meeting the two-year requirement. The new rules define these unforeseen circumstances. Among the events that may qualify your sale for partial gain exclusion are the following: Your home is damaged by a disaster, act of war, or terrorism You are transferred or lose your job You or a family member must move for health reasons You get a legal seperation or divorce You can't afford the mortgage payments due to a change in employment status You have to sell due to multiple births from the same pregnancy For more in depth details and information contact your personal accountant or professional. Important Dates: March 17- Deadline For calendar-year corporations to elect S corporation status for 2003. 17- Deadline for filing 2002 tax returns for calendar-year corporations. April 1- Deadline for taking your first distribution from regular IRAs if you turned 70 1/2 in 2002. Unless your're still working, this deadline also applies your other retirement accounts (except for Roth IRAs). 15- Deadline for filing 2002 individual tax returns. 15- Deadline for filing 2002 partnership returns. 15- Deadline for filing 2002 gift tax returns. 15- Deadline for making your 2002 IRA contribution. 15- First installment of 2003 individual estimated tax is due. June 16- Second installment of 2003 individual estimated tax is due. *This information deemed reliable but not guaranteed. The information was extracted from: New IRS rules on home sales hold good news for taxpayers Your Financial Planner Spring 2003.*