If you are a single taxpayer of $500,000 and if you are a married taxpayer filing jointly as well provided the home was your primary residence in at least two of the preceding five years and the basic tax rule is that you can rule out some gains of up to $250,000 when selling your principal residence. And also under previous tax law, you could even sell your house as well as defer any gains by purchasing a home of equal or value greater than that within a certain period of time. Gains could always persist to be deferred as you have bought as well as sold homes. When selling your current home, you must recognize those deferred gains as well as the gain on your current home under current tax law. To get qualified for prorating the exclusion, the Internal Revenue Service has specified that unforeseen situations can comprise of divorce, death, multiple births from the same pregnancy, becoming eligible for unemployment compensation, a change in employment status making yourself incapable of paying household costs, damage to your home from a natural or manmade disaster or from an act of war or terrorism, and the condemnation or seizure of the property. The safe harbor rule available assumes a change in employment is the only primary reason for your move if your new job is more than 50 miles away from the home you sold than your prior job.

In the next year after your spouse's death, you should begin filing as a single taxpayer. Suppose if one spouse has a gain on his/her house, however, the couple may want to live in the home for at least two years. If the sale occurs more than two years after the sale of the first house, the couple will be eligible for the whole $500,000 exclusion. In this situation where both parties keep hold of ownership but one party moves out, make the arrangement a condition of the divorce decree. When the home is sold out, the $500,000 exclusion will apply, even though one of the parties did not live in the home in two of the preceding five years. You no longer have to allocate the gain between home and business use when selling your home, as long as the portion used for business is part of your main dwelling unit. Thus, all of your gain is appropriate for exclusion. If the business portion gets separated from your main dwelling unit, such as a converted detached garage, you should allot it between business and home usage at a halt.