What it is:
How it works/Example:
For example, let's assume John Doe buys a house in Austin, Texas, for $150,000. He moves in in April and stays there for six years. Then he sells the house for $225,000, creating a
Now let's say that John Doe buys a second home in Austin for $100,000 and rents it out to Jane Smith. He gets sick of being a landlord and sells the house for $125,000, for a $25,000 . Because this house is not his main home, the $25,000 is probably taxable.
Why it matters:
As you can see, identifying a person's main home has tax consequences. Main homes can be houses, but they can also be houseboats, mobile homes, co-ops or condominiums. The IRS requires to live in their main homes for at least two years during the five-year period ending on the date of the to avoid taxation on a certain amount of (typically $500,000 for a couple).