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When you sell your principal residence
, you can exclude from income up to $250,000 of gain and $500,000
on a joint return. Ownership and use tests must be met . But
if you've been taking a home office deduction because you
used part of your home for business, the IRS will consider
part of the house sale as a sale of business property. That
means you'll have to pay taxes on the portion of the gain
which is allocated to the part of the house you used for the
business.
You can avoid this problem if no part
of your house qualifies for a home-ofiice deduction during
the year the sale is made. If you make sure that it is obvoius
that your home office space is used for non-business purposes,
it won't qualify for the home-office deduction. The sale will
not be treated as a partial sale of business property and
the sales proceeds will qualify for exclusion of the gain
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