What is the exemption for the sale of houses over 55?
The exemption for sales of homes over 55 was a tax law that gave homeowners over 55 a one-time capital gains exclusion. Qualifying persons could exclude up to $ 125,000 in capital gains on the sale of their personal residence.
This exclusion was intended to stimulate the real estate market and to reward owners for the purchase and subsequent sale of their home.
The exemption for the sale of houses over 55 has not been in effect since 1997. It has been replaced by other exclusions for all, regardless of their age, who have benefited from the sale of their principal residence.
Understanding the exemption for sales of homes over 55
The exemption for sales of homes over 55 has been put in place to give homeowners some relief from the tax consequences of selling their homes. The exemption no longer exists because it was replaced by new rules when the Taxpayer Relief Act of 1997 was ratified. This law was one of the most important tax reduction laws put in place by the United States government.
Under the old rule, eligible taxpayers could avoid paying taxes on the sale of their housing, provided that it was a principal residence. Taxpayers who took advantage of the exemption for the sale of homes over 55 would fill out Form 2119 with the Internal Revenue Service (IRS). The form was used even if the taxpayer carried all or part of the gain to another taxation year.
Taxpayers were also required to report losses from the sale of their home on sale form 2119. But, according to the IRS, taxpayers could not deduct the loss from their tax burden.
Back then, home sellers had an alternative to the exemption. In order to avoid tax payments, sellers could use the proceeds to purchase a more expensive home within two years.
Application of the exemption for people over 55
When the exemption was in effect, several criteria were required to be eligible. The seller, or at least a title holder, must be 55 years of age or older on the day the house is sold. For married couples, only one spouse was required to fulfill this mandate. This spouse also had to be the owner of the property on the date of the transfer of property for the exemption to apply. Only one exemption was allowed per married couple, which would prevent one spouse from requesting the exemption for a sale and the other spouse from making a request for a subsequent sale.
The seller or at least one holder of the title had to be 55 years old or more on the date of sale to be able to benefit from the exemption.
But there was a flaw. If a principal residence was co-owned by two or more single persons, it was possible for more than one title holder of the appropriate age to benefit from the exemption. In order for the house to qualify, the title holder had to own and use the property as their principal residence for at least three of the five years immediately preceding the sale of the house. There were allowances for time spent outside for vacation or medical care.
Key points to remember
- The exemption for sales of homes over 55 was a tax law that gave homeowners over 55 a one-time capital gains exclusion.
- The seller or at least one holder of the title must have been 55 years of age or over on the day of the sale of the house.
- Following the adoption of the Taxpayer Relief Act of 1997, the exemption was replaced by new exclusion amounts per sale for all owners, regardless of age.
Current exemptions for home sellers
After the Taxpayer Relief Act of 1997 was passed, the new tax burden on home sales has eased for millions of residential taxpayers, regardless of their age. Deferrals or unique options in life, such as the exemption for the sale of homes over 55, have been replaced by new exclusion amounts per sale.
Homeowners can now qualify to exclude from their income all or part of the gains from the sale of their principal residence. The law increased the amount of the excluded gain to $ 250,000 per taxpayer or $ 500,000 on a joint return filed by a married couple. The law also allowed more than one exclusion per taxpayer per life. However, the taxpayer could not rule out the gain from another home sale during the two-year period ending on the date of the sale.
Ownership and use tests
Homeowners must now pass their property test and use tests if they wish to be eligible for these exemptions. To meet the ownership requirement, taxpayers must own the home for at least two years. The usage test, on the other hand, requires sellers to live in the house as their main residence for at least two years. Both tests must be satisfied during the five-year period until the date of sale.
Homeowners who use their home for business or rental income may also be eligible. But they must succeed in homeownership and use tests as well. For example, suppose you bought a property in 2000 and lived there until 2001. You can move out and rent the house for the next two years. You decide to return once your tenant has left and live there until 2005, when you find a buyer and sell the property. In this case, you can still benefit from the exemption, since you used it as your main residence for at least two of the five years preceding the sale.