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What is the 2 out of 5 year test for a principle residence?

Taxpayers are entitled to an exemption on taxable gains if the home meets the principle residence test. In order for the home to qualify as the principle residence, the taxpayer must meet the 2 out of 5 year test. Basically, this test assess whether or not the taxpayer lives in the home as the primary residence for 2 of the last 5 years leading up to the sale.


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