Changes to the tax laws in 1997 provided a new exclusion for gain from the sale of a principal residence. The law applies only to homes that qualify as a principal residence. This specification eliminates vacation homes, timeshares, or other types of real estate. The home must have actually been lived in as a principal residence for two of the five years immediately preceding its sale. For taxpayers in the categories of single head of household, or married filing separately, the exclusion is $250,000. For married taxpayers filing a joint return, the exclusion is $500,000. The exclusion can be used only once every two years. Gain in excess of the exclusion is taxable, usually as long-term capital gain.
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