SALE OF YOUR
CONTACT INFORMATION
                                                        PRINCIPAL RESIDENCE
                                                        AND PA PERSONAL INCOME                               What is a residence?                                       rent it or use it for any other purposes. He moved
Online Customer Service Center                          TAX IMPLICATIONS                                     A  residence  is  a  house,  lodging  or  other  place  of back to his home in Harrisburg in 2003 and lived
www.revenue.pa.gov                                                                                           habitation, including a trailer or condominium that:       there  until  he  sold  it  in  2005.  John  meets  the
                                                                                                                                                                        requirement  for  using  his  house  as  his  principal 
Taxpayer Service & Information Center                                                                        • Has  independent  or  self-contained  cooking,
                                                                                                                                                                        residence for at least two years during the five-year
Personal Taxes:  717-787-8201                                                                                sleeping and sanitation facilities; 
                                                                                                                                                                        period preceding the sale.
Business Taxes:  717-787-1064                                                                                • Was used and physically occupied by a taxpayer
                                                                                                                                                                        If  John  had  never  moved  back  to  his  Harrisburg
e-Business Center: 717-783-6277                                                                              for residential purposes; and
                                                                                                                                                                        home, he would not meet the use requirement for
                                                                                                             • Was  not  occupied  or  used  by  a  taxpayer  on  a     this  exclusion.  Even  though  he  never  rented  his
Automated 24-hour FACT & Information Line                                                                    sporadic and transient basis, or only for a definite       house or used it for any other purpose, John would
1-888-PATAXES (728-2937)                                                                                     and promptly accomplished purpose.                         have to pay PA income tax on any gain he realized
Touch-tone service is required for this toll-free call.                                                                                                                 from the sale of his Harrisburg home.
Call to order forms or check the status of a                                                                 What  are  the  requirements  to  exclude  from
                                                                                                             PA-taxable income the gain from the sale of a              (3) Ownership: The law requires that a taxpayer
personal income tax account, corporation tax                                                                 principal residence?                                       owned the residence as a principal residence for a
account or property tax/rent rebate. 
                                                                                                                                                                        total  of  at  least  two  years  during  the  five-year 
                                                                                                             The seller(s) must meet these four requirements:           period preceding the date of sale.
Automated Forms Ordering Message Service
                                                                                                             (1) Date  of  Sale: The  sale  of  the  principal          Example: Mary leased one-half of a house in State
1-800-362-2050
                                                                                                             residence must be after Dec. 31, 1997. The date of         College and resided there since 2000. In 2002, she
                                                                                                             the sale is the date the buyer accepts the deed and        bought  the  entire  property  and  used  it  as  her 
Service for Taxpayers with Special                                                                           the title passes from the seller to the buyer, usually     principal residence until she sold it in 2005. Mary
Hearing and/or Speaking Needs
                                                                                                             the date of settlement.                                    meets the ownership requirement for this exclusion.
1-800-447-3020                                                                                               If the seller postpones delivery of the deed, the sale     However, if Mary had bought the house in 2004, she
                                                                                                             is the date possession and the burdens and benefits        would not meet the ownership requirement. 
Call or visit your local Department of Revenue 
                                                                                                             of  ownership  pass  from  the  seller  to  the  buyer.    Important:  The  taxpayer  does  not  have  to 
district office, listed in the government pages 
                                                                                                             For a condemnation, the date of the sale is the date       meet  the  use  and  ownership  requirements 
of local telephone directories.
                                                                                                             the taxpayer receives the condemnation proceeds.           simultaneously,  but  the  taxpayer  must  meet 
                                                                                                             For destruction or casualty loss, the date of sale is      both during the five-year period preceding the date
                                                                                                             the  date  the  taxpayer  receives  the  casualty          of the sale.
                                                        Generally,  homeowners  who  owned  and  used
                                                                                                             insurance proceeds or damages.
                                                        their homes as principal residences for at least                                                                (4) Prior  Sale: To  qualify  for  the  exclusion,  the
                                                        two of the five years prior to the date of sale will (2) Use: The law requires that a taxpayer used the         taxpayer  could  not  have  sold  another  principal 
                                                        qualify for exclusion of the gain from the sale of   residence as the principal residence for a total of        residence within the two years preceding the date of
                                                        a personal residence from PA taxable income.         at  least  two  years  during  the  five-year  period      sale of the current residence.
                                                                                                             preceding the date of sale.                                Example: Rob and Ann owned and lived in a house
                                                                                                             Example: John  bought  a  house  in  Harrisburg  on        in Johnstown. In February 2002, they moved to Erie
                                                                                                             Jan. 1, 2001. He lived there until July 1, 2002. He        and bought a new house. In August 2002, they sold
                                                                                                             changed jobs and moved to Pittsburgh in July 2002,         their Johnstown home. They owned and used the
                                                                                                             but he maintained his Harrisburg home. He did not          Erie home as their principal residence until they sold

www.revenue.pa.gov                                      REV-625 PO (04-15)

it in June 2005. They meet all the requirements for        Even  if  the  taxpayer’s  family  physically  occupied  residential purposes) – Could the taxpayer still       How could one spouse qualify and the other not?
this exclusion.                                            the  residence,  it  is  not  the  taxpayer’s  principal qualify for the exclusion?
                                                                                                                                                                           If  a  couple  files  a  joint  return  and  at  least  one
However, if Rob and Ann sold their Johnstown home          residence if he or she did not occupy it.                The taxpayer may be able to exclude a portion of       spouse  qualifies  for  the  exclusion,  they  will  both
in August 2003, they would not meet the prior sale         Example: Bill  and  Helen  purchased  a  home  in        the  gain.  Gain  is  determined  separately  on  the  qualify.  However,  if  they  file  separate  returns, 
requirement  for  the  Erie  house’s  exclusion.  They     Pittsburgh in January 2001, and Bill began working       portion  of  the  property  used  for  residential     then  they  each  must  qualify  for  the  exclusion 
owned and used their house for at least two years          in  Philadelphia  in  March  2001.  He  leased  an       purposes and the portion of the property used for      individually.
during the five-year period preceding the sale, but        apartment  there  and  commuted  to  Pittsburgh  on      other purposes. The gain that is attributable to the   Example: If one spouse lived in an assisted-living
they  would  have  sold  their  principal  residence       weekends, holidays and vacations. In January 2005,       property used for nonresidential purposes does not     facility for the four years immediately preceding the
within two years of the sale of their next principal       they  sold  their  Pittsburgh  residence.  Helen  meets  qualify for the exclusion.                             sale of the residence and the other spouse lived in
residence.                                                 the  use  and  ownership  requirement  for  the                                                                 the residence, the spouse that lived in the assisted-
                                                           exclusion, but Bill does not. He meets the ownership     What is a mixed-use property?                          living facility does not qualify and must pay tax on
What  if  a  taxpayer  meets  the  use  and                requirement,  but  does  not  meet  the  use  require-   Examples of mixed-use property include the following:  his or her share of the gain. The best way to avoid
ownership requirements, but sells his or her               ment. He only used his Pittsburgh home for three                                                                this situation is to file a joint PA income tax return.
principal residence within two years of selling            months  in  2001.  His  principal  residence  was  his   • A sole proprietor’s residence above his retail store;
his or her next principal residence?                       apartment  in  Philadelphia.  If  they  elect  to  file  • A  duplex  where  the  owner  rents  one  unit  and  If  the  requirements  for  the  exclusion  aren’t
The  taxpayer  will  not  qualify  for  the  exclusion.    separate  PA  tax  returns,  Helen  qualifies  for  the  lives in the other; and                                met, how is gain reported?
However, if the principal residence is sold due to an      exclusion on her half of the gain, while Bill must pay   • An  office  or  licensed  daycare  facility  located Gain or loss is reported on PA Schedule D.
unforeseen change in employment, health or severe          PA  personal  income  tax  on  his  half  of  the  gain. within a residence.
                                                                                                                                                                           The department supplies a worksheet that assists 
financial  hardship,  a  taxpayer  could  qualify  for     If they file jointly, since one spouse met the four      Mixed  use  also  includes  property  where  the  land
                                                                                                                                                                           in  calculating  a  gain  on  the  sale  of  a  principal 
the exclusion. An unforeseen change is one caused          requirements, they both qualify for the exclusion.       surrounding  the  residence  is  more  than  the 
                                                                                                                                                                           residence  and  the  taxable  portion.  The  PA-19 
by  accident,  illness,  loss  of  property,  casualty  or                                                          taxpayer reasonably needs for a residence. The land    worksheet  and  instructions  are  available  on  the
another  unexpected  event  beyond  the  control           What if one of the homeowners die?                       surrounding a farmhouse that the taxpayer uses for     department’s website, www.revenue.pa.gov, or by
of the taxpayer.                                           The  authorized  representative  of  a  decedent  may    commercial agriculture, livestock breeding or dairy    calling 1-888-PATAXES.
Example: If in the previous example Rob and Ann            not claim this exclusion on the final PA tax return      purposes is not necessary for residential purposes.
sold their principal residence in Erie because Ann’s       of  an  otherwise  qualifying  decedent,  unless                                                                If  a  taxpayer  sells  a  house  and  qualifies  for 
employer relocated her to Williamsport, they would         the  decedent  closed  the  sale  before  death.  The    What if some time during the period a taxpayer         a  full  exclusion  of  the  gain,  is  he  required 
qualify  for  the  exclusion  from  the  two-year  prior   decedent’s estate or trust may not exclude the gain      owned a home, a portion of the residence was           to report any information on/with the PA-40
sale provision based on an unexpected change in            on the sale of the decedent’s principal residence.       used as a business in the home?                        tax return?
employment.                                                                                                         If  a  taxpayer  received  or  was  entitled  to  a 
                                                                                                                                                                           If a taxpayer is eligible for Tax Forgiveness without
                                                           What  if  the  taxpayer  sells  the  principal 
                                                                                                                    depreciation deduction for having an office in the     reporting  any  gain  from  the  sale  of  a  principle 
If  a  taxpayer  owns  more  than  one  home,              residence on an installment basis?
                                                                                                                    home, for PA purposes or not, that portion of the      residence, he is required to include the gain from
which is the principal residence?
                                                           If  the  owner  meets  all  four  requirements,          home does not qualify for the exclusion. A taxpayer    the  sale  of  the  home  on  Line  8  in  Part  C  of  PA
The  principal  residence  is  the  home  that  the        an installment sale qualifies for this exclusion.        that claimed and received allowable office-at-home     Schedule  SP,  Special  Tax  Forgiveness,  in  the 
taxpayer  physically  occupied  and  personally  used                                                               depreciation  may  not  exclude  the  gain  on  that   determination  of  eligibility  income.      Otherwise, 
most  during  the  five  years  preceding  the  sale       What  if  a  principal  residence  is  a  mixed-use      portion of the principal residence. This applies even  taxpayers qualifying for the full exclusion of the gain
of  the  residence.  Moving  furniture  and  personal      property (partly used for business, commercial,          if the taxpayer stopped claiming the office-at-home    are not required to report or include any additional
belongings into a residence does not qualify as use.       industrial,  rental,  investment  or  other  non-        expenses.                                              information or forms with   PA-40 income tax returns.

                                                           www.revenue.pa.gov                                                                                              www.revenue.pa.gov