Just think about it. Advocates of home ownership are often very passionate about home purchasing. There are reasons for their enthusiasm. Let's discuss one right now, buying a house as a tax shelter.



Your home is probably the biggest purchase you will ever make and the largest tax shelter you will probably ever enjoy.

The more you review this page, the more you begin to find yourself appreciating one of the most significant benefits of owning a home, taking advantage of the tax free sale. You may be eligible to exclude up to a quarter-million dollar gain from any tax liability.

If you file a joint return you may be eligible to exclude double that, up to half-a-million dollars.

Imagine what it would be like if the money from the sale wouldn't have to be designated by the government for any purpose. Well, it doesn't. It is yours to keep and use at your discretion.

You can use all or part of it as a down payment for a new house. You can use it to invest as you wish. A plus for Seniors of retirement age, the tax free money can supplement income. You can pass the money on to your heirs. It is tax free income. It goes without saying that the government will charge inheritance tax.

You might be asking yourself how you too can qualify. There are two tests to meet in order to exclude the gain from the sale of your home. Reference: Department of the Treasury, Internal Revenue Service, Publication 523, Selling Your Home, 2007, page 10

Basically, during the 5 year period prior to the sale of your home, you must meet the ownership test and the use test. The ownership test requires that you have owned your home for at least two years. The use test requires that you must have lived in the home as your primary residence for a minimum of two years.

In addition, the two year ownership test and the two year use test that end on the date you sell your house do not have to be continuous. If you can show that you owned and lived in the house and used it as your primary residence for a full 24 months over the last 5 years, congratulations, you meet both tests.

The IRS uses this example. Suppose you bought and moved into a house in July 2003. You then lived there for 13 months but moved in with a friend because of personal circumstances. In 2006 you moved back into your house living there for another twelve months before selling in July 2007. You would meet both the ownership and use test because you owned the house four years while living in it for a total of 25 months during the 5-year period that ended when you sold the house.

Accordingly, the IRS also says that temporary absences are allowed for vacations and other seasonal absences even if you rent out the house. Temporary absences contribute to periods of use.

For the purpose of this article I am not going to explain every detail concerning excluding the gain from the sale of your home.

The important point is this. Everyone can enjoy tax free income up to $250,000 as an individual and up to $500,000 as a married couple from the sale of a home. The government has provided this powerful tax incentive to home ownership and buying a house should be a part of everyone's personal financial plan.

For more detailed information you should consult a qualified tax professional, accountant, or tax attorney.