Federal Tax

Tax Implications of Home Ownership (Portfolio 594)

  • This Portfolio discusses the tax rules and tax consequences that apply to home ownership, home sales, and owner relocations.


Bloomberg Tax Portfolio, Tax Implications of Home Ownership, No. 594, discusses the tax consequences of the purchase, financing, refinancing and sale or exchange of a taxpayer’s principal residence.

Section 121 provides that taxpayers may exclude from income up to $250,000 ($500,000 for taxpayers filing joint returns) of gain from the sale of a residence. The residence must have been owned and used by the taxpayer as his or her principal residence for periods aggregating two years during the five-year period preceding the sale. The exclusion is allowed each time a taxpayer meets the eligibility requirements, but generally no more frequently than once every two years.

Section 217 permits a deduction of certain moving expenses. The Revenue Reconciliation Act of 1993 narrowed the scope of the moving expense deduction under §217, but provided a significant benefit by making the deduction an above-the-line item, to be taken into account in determining adjusted gross income. In addition, the 1993 Act amended §§82 and 132, so that employer reimbursements of moving expenses are generally excludible from income.

Section 163(h) excepts from the disallowance of personal interest deductions any qualified residence interest paid or accrued by a taxpayer. Qualified residence interest includes “acquisition indebtedness” (i.e., debt secured by the taxpayer’s residence that is incurred to acquire, construct, or substantially improve that residence), and “home equity indebtedness” (i.e., debt secured by the residence that does not exceed the fair market value of the residence less any acquisition indebtedness, but limited to $100,000).

Table of Contents

I. Overview
II. Purchase, Improvement and Financing
III. Moving to the New Residence
IV. Sales – Exclusion of Gain on Sale of Residence: Current Law – Post-1997 Taxpayer Relief Act § 121
V. Sales – Exclusions of Gain on Sale of Residence – Former Law: § 1034 Gain Rollovers
VI. Sales – Exclusion of Gain on Sale of Residence: Former Law: § 121 – Sale or Exchange of Residence at Age 55 or Older: Prior Law
VII. Other Considerations in Sale or Exchange of Residence – Deductions; Reacquisitions
VIII. Credits Available to Homeowners

Bruce Edwards
Sorensen & Edwards, P.S.
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