Student wants tax exemption on condo

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Dear Tax Talk,
I own a condo that I want to sell now that I have finished school. It’s been my primary residence for the last four years. My parents have claimed me as a dependent on their taxes while I was going to school and have taken the deductions on the condo as a second home. Am I eligible for the capital gains exemption when I sell?
— Anthony


Dear Anthony,
You can exclude up to $250,000 of the gain on the sale of your main home if all of the following are true:

You meet the ownership test.
You meet the use test.
During the two-year period ending on the date of the sale, you did not exclude gain from the sale of another home.

If you and another person owned the home jointly, but file separate returns, each of you can exclude up to $250,000 of gain from the sale of your interest in the home if each of you meets the three conditions listed above.

Since apparently you own the home jointly, the most you could exclude would be half of the gain. Your parents would not be able to exclude anything, as it was a second home for them. The key question is: Was the home your main home?

Internal Revenue Service regulations define your principal residence as follows:

In the case of a taxpayer using more than one property as a residence, whether property is used by the taxpayer as the taxpayer’s principal residence depends upon all the facts and circumstances. If a taxpayer alternates between two properties, using each as a residence for successive periods of time, the property that the taxpayer uses a majority of the time during the year ordinarily will be considered the taxpayer’s principal residence. In addition to the taxpayer’s use of the property, relevant factors in determining a taxpayer’s principal residence include, but are not limited to:

(i) The taxpayer’s place of employment;

(ii) The principal place of abode of the taxpayer’s family members;

(iii) The address listed on the taxpayer’s federal and state tax returns, driver’s license, automobile registration, and voter registration card;

(iv) The taxpayer’s mailing address for bills and correspondence;

(v) The location of the taxpayer’s banks; and

(vi) The location of religious organizations and recreational clubs with which the taxpayer is affiliated.

You probably used the school condo for the majority of the time. However, this in itself might not make it your principal residence, as your parents continued to claim you as a dependent. This is where the situation gets hairy, so I suggest that you consult with a CPA to see if, based on all your facts and circumstances, you can qualify the home as your principal residence.

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