Bookkeeping Tip: Pocket up to $500,000 Tax Free - Palma Financial

Did you know that the right bookkeeping can allow you to pocket up to $500,000.00 tax-free? That’s right! And how do you do this? Easy. Use your primary home to build wealth.

As you know, real estate prices keep going up, and supplies of new homes are not keeping up with demand.

Now is the best time to get top dollar for your primary residence, so make sure that your bookkeeping is in order. Even better, the IRS makes even more appealing with this tax break.


The primary home exclusion is one of the many tax-saving opportunities you should be incorporating into your bookkeeping. It allows for a large sum to be excluded from capital gains taxes when selling your principal residence, nearly $250,000 ($500,000 if married and filing jointly).

Unmarried homeowners can potentially exclude gains up to $250,000, and married homeowners can exclude up to $500,000.

To take full advantage of the principal residence gain exclusion break, you must pass two tests: the ownership test and the use test.

  • To pass the ownership test, you must have owned the home for at least two years out of the five years ending on the sale date.
  • You must have used the home as your principal residence for at least two years out of the five years ending on the sale date to pass the use test.

Key point. These two tests are completely independent. In other words, periods of ownership and use need not overlap.

If you’re married and your spouse files your tax returns separately, you can potentially qualify for two separate $250,000 exclusions.

If you’re married and file jointly, you qualify for the $500,000 joint-filer exclusion if:

  • either you or your spouse passes the ownership test for the property and
  • both you and your spouse pass the use test.

When you file jointly, it’s possible for both you and your spouse to individually pass the ownership and use tests for two separate residences. In that case, you and your spouse would qualify for two separate $250,000 exclusions.

Each spouse’s eligibility for the $250,000 exclusion is determined as if you were unmarried. For this purpose, a spouse is considered to individually own property for any period either spouse owns the property.

The other significant qualification rule for the primary home gain exclusion privilege is that the exclusion is generally available only when you have notexcluded an earlier gain within the two years ending on the later sale date. In other words, you generally cannot recycle the gain exclusion privilege until two years have passed since you last used it.

You could claim the more significant $500,000 joint-filer exclusion only if neither you nor your spouse took advantage of it for an earlier sale within the two years. If one spouse claimed the exclusion within the two-year window, but the other spouse did not, the exclusion is limited to $250,000. When you choose us for your bookkeeping, we will help you take advantage of any tax breaks you qualify for!

Let us take care of your tax, bookkeeping, and accounting needs, so you can concentrate on what you do best running your business!!! Let’s discuss more in a strategy session. Book Your Free Assessment Here.