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No strings attached to tax-free home sale

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in Small Business Tax

Q: I've heard that I'd have to pay tax on a home sale if I don't use the profits to buy another home. I didn't think that's true. Am I correct? O.D., New York City

A: You're correct. For sales before May 7, 1997, home sellers could take advantage of two separate tax breaks: (1) You could defer tax by rolling over proceeds from a home sale into another home. (2) You could elect a once-in-a-lifetime $125,000 home-sale gain exclusion. However, both tax breaks were replaced by the current exclusion, which says unmarried filers will face no tax on the first $250,000 of home-sale gain ($500,000 for joint filers) if they've owned and used the home as their principal residence for at least two out of the previous five years. Tip: Best of all, you can claim the home-sale exclusion more than once.

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