Exclusions to the bright-line rule
When you sell residential property there are situations when the bright-line property rule does not apply.
The property is your main home.
You inherited the property.
You're the executor or administrator of a deceased estate.
The main home exclusion
If you are selling a property you need to decide if it's your main home. You can only have 1 main home. It is the property you have the greatest connection to.
You can use the main home exclusion under the bright-line property rule if the following 2 situations apply.
You have used a property as your main home for more than 50% of the time you’ve owned it.
You have used more than 50% of the property's area (including your backyard, gardens and garage).
It's important to note that having the intention to use the property is not enough, you must have actually used it for this purpose.
You can only use the main home exclusion twice over any two-year period.
If you use part of your house as a business or it has a rental property attached, using more than 50% of the property's area is important. For example, if you use 40% of a property as your home and rent out 60% as a granny flat, you cannot use the main home exclusion if you sell that property.
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