A homeowner may exclude up to $250,000 of gain from the sale or exchange of a home if he owned and used it as his principal residence for at least two of the five years before the sale or exchange took place.The maximum exclusion is $500,000 for joint filers, if certain conditions are met. A taxpayer who uses a property partially as a principal residence and partially for business purposes is treated as using the entire property as his principal residence for purposes of the two-year use requirement if the residential and business parts are within the same dwelling unit. The exclusion doesn't apply, however, to the gain resulting from depreciation taken for partial business use of the residence after May 6, 1997.

Recognition of gain or loss is deferred if property held for productive use in a trade or business or for investment is exchanged solely for property of like kind that also is to be held either for productive use in a trade or business or for investment. Gain or loss will not be recognized until the property received in the exchange is sold or exchanged in a taxable transaction.

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