To all Tax Gods & Goddesses: Capital Gains Help

[Sn-man]

I am doing my taxes and trying to understand capital gains taxes on the sale of our home. We sold one house and bought another. It is our primary only home. We made $45,000 on the sale, all of which was put back into the new house. The question is related to the $250,000 (single ) or $500,000 (couple) capital gains exclusion. Is the exemption for one time only? Is it a lifetime cumulative exemption. Is it applicable for each sale of a primary resident? I really don’t want to squander an exemption this early in life if it isn’t applicable to each sale. Any Tax Gods or Goddesses who can help?

[DataMike]

The exemption is one-time only applicable to the sale of your primary residence. Doesn't seem worth it to blow it on $45,000.....

[douglips]

I believe DataMike is incorrect.

You want to read IRS Publication 523 (PDF) (http://ftp.fedworld.gov/pub/irs-pdf/p523.pdf) which discusses this topic.

Excerpts:
[...an example where a couple has sold two homes more than two years apart]
Because they had not excluded gain on the sale of
another home within the 2-year period ending on De-cember
1, 2000, they can exclude the gain on this sale.

The upshot is you can exclude the income every 2 years. Specifically, the next house you sell has to be sold more than 2 years after you sell this house, I think.

The publication also covers rules for sales before 1997, where there was some kind of one-time exclusion. Specifically, see the section titled "Rules That Allowed
One-Time Exclusion of Gain". That may be what DataMike is thinking of.

Your mileage may vary - read the form and get tax advice if you are at all confused.

[Diver]

In addition to what douglips said, even back when the exclusion was a one time thing, if you put all the proceeds from the sale back into the purchase of another house within two years, you did not have to declare the profit as income at that time.
When you died or sold your last house without buying a new one, you or your estate could then claim the one time exclusion.

[Sn-man]

Thanks for the info. The link is very helpful.