The property owner may be able to exclude gain from the sale of a home that the property owner has used for business or to produce rental income, provided the property owner meets both the ownership test and the use test.

Following is an example: On May 30, 1997, David bought a house. He moved in on that date and lived in it until May 31, 1999, when he moved out of the house and put it up for rent. The house was rented from June 1, 1999, to March 31, 2001. David moved back into the house on April 1, 2001, and lived there until he sold it on January 31, 2003.

During the 5-year period ending on the date of the sale (February 1, 1998 - January 31, 2003), David owned and lived in the house for more than 2 years (16 months plus 22 months), and the home was used as a rental for 22 months. Since David is single, David therefore can exclude gain up to $250,000 ($500,000 if married). However, he cannot exclude the part of the gain equal to the depreciation he claimed for renting the house.

*** Please consult your tax accountant or attorney to get professional advice regarding your specific tax situation.