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Partial tax exclusion: A house divided still stands

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in Small Business Tax

How do you figure the amount available for a partial exclusion? Multiply the available exclusion by the appropriate ratio.

Example: You and your spouse have lived in and owned your house as your principal residence for nine months. Due to unforeseen circumstances, you must sell the home—at a $200,000 gain— before you meet the two-year requirement.

On those facts, you can exclude up to $187,500 of home-sale gain from tax ($500,000 times 9 months divided by 24 months). The remaining $12,500 gain ($200,000 less $187,500) is subject to federal income tax at the long-term capital gain rate.

Tip: To figure the exclusion, use the work sheet in IRS Pub. 523 (Selling Your Home) located at

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