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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 IRS Publication 587 Business Use of Your Home (Including Use by Daycare Providers), on page 15:

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 lived 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 does not 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 the "Separate Part of Property Used for Business" section on page 15 of this publication.

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 in the upper left-hand corner, then click Federal.
  2. Click Investment Income in the Federal Quick Q&A Topics menu to expand, click Gain or loss on the sale of investments to expand, then click Sale of your main home.
  3. Continue with the interview process to enter all of the appropriate information.
  4. On the screen titled Investment Income - Sale of Main Home, click Yes.
  5. On the screen titled Sale of Main Home - Installment Sale, click Continue.
  6. On the second screen titled Investment Income - Sale of Main Home, click Yes.
  7. On the screen titled Sale of Main Home - Basis of Home, enter the depreciation allowed or allowable for the business use of your home, then click Continue.

Note that any link in the information above is updated each year automatically and will take you to the most recent version of the document at the time it is accessed.


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