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You may be able to exclude some of the gain on the sale of your home used for business purposes if you meet the ownership and use tests, and if the part of your property used for business is within your home (in other words, not a separate part of your property).

Per the IRS Publication 587 Business Use of Your Home, page 14:

Sale or Exchange of Your Home

If you sell or exchange your home, you may be able to exclude up to $250,000 ($500,000 for certain married persons filing a joint return) of the gain on the sale or exchange. In most cases, you must meet the ownership and use tests. However, even if you meet the ownership and use tests, your home sale is not eligible for the exclusion if either of the following is true.

  • You acquired the property through a like-kind exchange (1031 exchange) during the past 5 years.
  • You are subject to the expatriate tax.

Ownership and use tests. The ownership and use tests generally require that during the 5-year period ending on the date of the sale:

  • You owned the home for at least 2 years (ownership test), and
  • You live in the home as your main home for at least 2 years (use test). The 2 years of residence can fall anywhere within the 5-year period, and it doesn't need to be a single block of time.

Gain on Sale

If you use property partly as a home and partly for business, the treatment of any gain on the sale varies depending on whether the part of the property used for business is part of your home or separate from it.

Part of Home Used for Business

If the part of your property used for business is within your home, such as a room used as a home office for a business or rooms used to provide daycare, you do not need to allocate gain on the sale of the property between the business part of the property and the part used as a home. In addition, you do not need to report the sale of the business part on Form 4797, Sales of Business Property. This is true whether or not you were entitled to claim any depreciation. However, you cannot exclude the part of any gain equal to any depreciation allowed or allowable after May 6, 1997. See Depreciation, later.

Note: if you used a separate part of your property for business, see Separate Part of Property Used for Business in IRS Publication 587.

To enter the sale of your home used in your business in the TaxAct Program:

  1. From within your TaxAct return (Online or Desktop), click Federal.  On smaller devices, click the menu icon in the upper left-hand corner, then select Federal
  2. Click Investment Income in the Federal Quick Q&A Topics to expand the category and then expand the Gain or Loss on the Sale of Investments category
  3. Click Sale of your main home, then click Yes
  4. Click Yes to the question Would you like to complete the sale of home worksheet to determine if you qualify to exclude any gain?
  5. The program will proceed with the interview questions for you to enter or review the appropriate information
  6. On the screen Sale of Main Home - Basis of Home, enter the depreciation allowed or allowable for the business use of your home

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