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When you sell your home, you may realize a capital gain. If the property was your principal residence for every year you owned it, you will not pay any capital gains tax. Starting with the 2016 tax year (due in 2017), you will have to report basic information of the sale on your tax return.
You’re only allowed to designate one home as your principal residence for a particular year. If you’re unable to designate your home as your principal residence for all the years you owned it, a portion of any gain on sale may be subject to tax as a capital gain. The portion of the gain subject to tax is based on a formula that takes into account the number of years you owned the home and the number of years it was designated as your principal residence.
To help you make this designation, you should determine the fair market value (FMV) of each home.
If you sell both homes in the same year and one is designated as your principal residence, 50% of the gain from the sale of the other residence will be subject to tax at your individual tax rate.
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