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What Are The Tax Rules for Retiree Home Sales?

Question: What are the tax implications for a home sale by a retired couple, both over 65? Is there a $500,000 capital gains tax exclusion if they buy another home of equal or greater value?  Or are there new rules? What if they do not buy another home, but buy into a retirement community, apartment or condo?

— Tom, Marin County, Calif.

Answer: No matter your age, you don’t have to pay tax on gains of up to $250,000 per person (or $500,000 per couple) on the sale of your home.  To qualify for this tax exclusion, you must own the home and have lived in it as your main residence for at least two of the last five years, says Arlen Olberding, a financial planner at Fort Collins, Colo.-based Guidepost Financial Planning.

If you then buy another home, apartment or condominium, the clock starts again.  You’ll have to live in that new place, as your main residence, not as a second home, for at least two years before you can get the capital gains exclusion.  “It doesn’t matter whether the home is a condo or a cabin in the woods,” says Olberding. “What matters is that you own it and live in it for at least two out of five years.”

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