September 16, 2005

Thomas C. Roberge & Company
St. Petersburg and Sarasota

On the sale or exchange of a principal residence a U.S. individual can exclude from income up to $250,000 of gain ($500,000 on a joint return).  Second homes (for example, vacation homes and rental property) do not qualify for this exclusion.  Certain ownership and use tests must be met to qualify for this benefit.  In general, the exclusion cannot be used more than once every two years.

The gain may only be excluded if the individual owned and used the property as his or her principal residence for periods aggregating to two years or more in the five-year period ending on the date of sale.  A principal residence is basically an individual's tax home - i.e. where he or she spends most of the time.

The question often arises about whether a nonresident alien can use this exclusion for a sale of their Florida property.  The answer is no since by definition a nonresident alien is normally not allowed to live or work in the U.S. and the likelihood is that their tax home is in a foreign country.  The tax law definition of principal residence depends on all the facts and circumstances.  However, our experience in dealing with nonresident aliens has been that they usually do not qualify for this exclusion and their gain on the sale of U.S. real estate is subject to the income tax here.

Feel free to contact us if you have questions.