{"id":3089,"date":"2017-02-07T19:23:48","date_gmt":"2017-02-08T03:23:48","guid":{"rendered":"http:\/\/blog.huddlestontaxcpas.com\/?p=1928"},"modified":"2017-02-07T19:23:48","modified_gmt":"2017-02-08T03:23:48","slug":"essential-points-of-the-principal-residence-exclusion","status":"publish","type":"post","link":"https:\/\/huddlestontaxcpas.com\/blog\/essential-points-of-the-principal-residence-exclusion\/","title":{"rendered":"Essential Points of the Principal Residence Exclusion"},"content":{"rendered":"<figure id=\"attachment_1929\" aria-describedby=\"caption-attachment-1929\" style=\"width: 300px\" class=\"wp-caption alignright\"><a href=\"http:\/\/blog.huddlestontaxcpas.com\/wp-content\/uploads\/2017\/02\/RealEstatePrincipalExclusionSection121.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-1929 size-medium\" title=\"Real Estate Property Capital Gains Exclusion Residence\" src=\"http:\/\/blog.huddlestontaxcpas.com\/wp-content\/uploads\/2017\/02\/RealEstatePrincipalExclusionSection121-300x225.jpg\" alt=\"Real Estate Property Capital Gains Exclusion Residence\" width=\"300\" height=\"225\" \/><\/a><figcaption id=\"caption-attachment-1929\" class=\"wp-caption-text\">Excluded Capital Gains<\/figcaption><\/figure>\n<p>In our first essay on section 1031 we promised to explore other sections of the tax code \u2013 namely, 1033 and 121 \u2013 which may be of interest to our readers. As always with HTC, we are true to our word. In this essay we will discuss some of the basic facts of section 121.<\/p>\n<p>Section 121 is referred to as the \u201cprincipal residence exclusion\u201d because it allows gains derived from the sale of one\u2019s primary residence to be excluded from taxable income (up to certain limits). Under 121, real property owners are permitted to exclude up to $250,000 in capital gains from the sale of their principal residence; married couples intending to file jointly may exclude up to $500,000.<\/p>\n<p>In order to qualify for section 121 treatment, property owners must prove that they have <em>owned<\/em> and <em>lived<\/em> in the property for at least <em>24 months<\/em> during the last 60 month period. It is not necessary that these 24 months be consecutive. Hence, under current law, it is theoretically possible to utilize section 121 once every 2 years.<\/p>\n<p>Real property owners who wish to take advantage of section 121 have to keep a close eye on the market trends which affect the value of their property. As we know, property values tend to fluctuate throughout the course of ownership, and if the value rises too high then the property owner may end up having a significant tax liability even after section 121 is invoked. If a property\u2019s value rises too high, converting the residence into a rental property and then utilizing section 1031 after a certain period of time has passed may be an optimal strategy.<\/p>\n<p>In later installments we will cover section 121 in greater detail by examining legal cases and viewing examples of how section 121 has been utilized in real-world scenarios.<\/p>\n<p>*It is worth mentioning that section 121 is the successor to section 1034. Section 1034 allowed taxpayers to defer 100 percent of the capital gain derived from the sale of their primary residence provided that they subsequently acquired another residence of equal or greater value. This section was replaced with the provisions of section 121 in 1997.<\/p>\n<p>Image credit: <a href=\"https:\/\/www.flickr.com\/photos\/mikerohrig\/\">Mike Rohrig<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In our first essay on section 1031 we promised to explore other sections of the tax code \u2013 namely, 1033 and 121 \u2013 which may be of interest to our readers. As always with HTC, we are true to our word. In this essay we will discuss some of the basic facts of section 121. [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[23],"tags":[],"class_list":{"0":"post-3089","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-real-estate","7":"entry"},"_links":{"self":[{"href":"https:\/\/huddlestontaxcpas.com\/wp-json\/wp\/v2\/posts\/3089","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/huddlestontaxcpas.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/huddlestontaxcpas.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/huddlestontaxcpas.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/huddlestontaxcpas.com\/wp-json\/wp\/v2\/comments?post=3089"}],"version-history":[{"count":0,"href":"https:\/\/huddlestontaxcpas.com\/wp-json\/wp\/v2\/posts\/3089\/revisions"}],"wp:attachment":[{"href":"https:\/\/huddlestontaxcpas.com\/wp-json\/wp\/v2\/media?parent=3089"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/huddlestontaxcpas.com\/wp-json\/wp\/v2\/categories?post=3089"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/huddlestontaxcpas.com\/wp-json\/wp\/v2\/tags?post=3089"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}