How am I taxed if I sell a primary home for the second time?


Q. If you’ve sold your primary residence once before, what’s the tax treatment on a second sale? Also, what’s the tax treatment for selling a non-primary residence?
— Seller, soon

A. We’re glad you’re asking.

You should be prepared for the tax consequences of a home sale before you get in too deep.

You’re probably asking about the capital gains exclusion — the Section 121 exclusion — on a home sale.

To qualify, you must meet both the ownership test and the use test, said Martin Hauptman, partner in the trust and estates and tax law practice groups at Mandelbaum Barrett, P.C. in Roseland.

“You’re eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to the date of the sale,” he said.

You can take the ownership use test during two different year periods, he said, but you must meet both tests during the five-year period ending in on the date of the sale.

“Generally, you’re not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home,” he said. “If you do not meet these tests the gain on the sale is taxed at capital gain rates.”

The sale of a non-primary residence isn’t eligible for the exclusion and will be taxed at capital gain rates, he said. That would be based on the difference between the selling price and the cost of the property, factoring in home improvements and less depreciation, if taken, he said.

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This story was originally published on Dec. 14, 2022. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.