Pennsylvania PA Schedule 19 - Sale of a Principal Residence

PA Schedule 19 - Sale of a Principal Residence
PA Schedule 19 - Taxable Sale of a Principal Residence (PA-19)
PA SCHEDULE 19

Taxable Sale of a
START Principal Residence
PA-19 (EX) 11-20 (FI)

➜

PA DEPARTMENT OF REVENUE

20

OFFICIAL USE ONLY

Name(s) as shown on PA-40

Primary Taxpayer’s Social Security Number

Street Address of Residence Sold

Spouse's Social Security Number

City

State

ZIP Code

RESIDENTIAL USE QUESTIONS

SECTION I
QUESTION 1.

What was the date of disposition for the residence? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

QUESTION 2.

Did the taxpayer use or have use of the property for a total of at least two years during
the five-year period preceding the date of disposition?

Yes

No

Did the taxpayer own the residence as principal residence for a total of at least two years
during the five-year period preceding the date of disposition?

Yes

No

Did the taxpayer sell another principal residence during the two years preceding the date
of disposition?

Yes

No

QUESTION 5.

At any time during the ownership period of the principal residence, was any part of the property surrounding the principal residence used for business purposes? See the instructions.

Yes

No

QUESTION 6.

At any time during the ownership period of the principal residence, was any part of the
principal residence itself used for business purposes? See the instructions.

Yes

No

QUESTION 3.
QUESTION 4.

MM/DD/YYYY

If the answers to Questions 5 and 6 are both "NO", go to Section II.

COMPLETE LINES 1A, 1B AND 1C IF YOU ANSWER "YES" TO QUESTION 5.
1a.

Enter the fair market value of the property used for residential purposes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1a.

1b.

Enter the fair market value of the entire property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1b.

1c.

Residential Use Ratio. Divide Line 1a by Line 1b and enter as a decimal using six decimal places.

Enter here and also enter on Line 9 below if the answer to Question 6 is "NO". . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1c.
COMPLETE LINES 2A, 2B AND 2C IF YOU ANSWER "YES" TO QUESTION 6.
2a.

Enter the total Square footage used for residential purposes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2a.

2b.

Total square footage of entire property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2b.

2c

Residential Use Ratio. Divide Line 2a by Line 2b and enter as a decimal using six decimal places.
Enter here and also enter on Line 9 below if the answer to Question 5 is "NO". . . . . . . . . . . . . . . . . . . . . . . . . .2c.

COMPLETE LINE 3 IF YOU ANSWER "YES" TO BOTH QUESTIONS 5 AND 6.
3.

Multiply Line 1c by Line 2c and enter the result as a decimal using six decimal places. . . . . . . . . . . . . . . . . . . . .3.

SECTION II

COMPUTING THE GAIN OR LOSS

MM/DD/YYYY

4.

Date the property was acquired. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.

5.

Face value of seller financed mortgage on which payments of principal and interest will be received. . . . . . . . .5.

6.

Ownership ratio using six decimal places. See the instructions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.

7.

Gross proceeds less expenses of sale for the entire property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.

8.

Multiply Line 7 by Line 6 and enter the result. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8.

9.

Enter the Residential Use Ratio from Line 1c, 2c or 3 above as appropriate. See the instructions. . . . . . . . . . . .9.

10.

Multilply Line 8 by Line 9 and enter the result. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10.

11.

Subtract Line 10 from Line 8 and enter the result. If Questions 5 and 6 above were
answered "NO", this amount will be zero. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.

12.

Adjusted or alternative basis of entire property. See the instructions if property was
acquired prior to June 1, 1971. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12.

13.

Adjusted or alterntive basis of property used for nonresidentlal purposes. See the instructions
if property was acquired prior to June 1, 1971. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13.

14.

Subtract Line 13 from Line 12. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14.

15.

Multiply Line 14 by the ratio on Line 6 and enter the result. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15.

16.

Subtract Line 15 from Line 10 and enter the result. See the instructions. If a loss, fill in the oval. . . . . . .

17.

Subtract Line 13 from Line 11 and enter the result. See the instructions. If a loss, fill in the oval. . . . . . .

LOSS

16.
LOSS

17.

.

Reset Entire Form

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Instructions for Schedule PA-19

Taxable Sale of a Principal Residence

PA-19 IN (EX) 11-20

WHAT’S NEW
The instructions for PA Schedule 19 have been updated to
follow the department’s standard formatting and branding.
Additional section headings and instructions for Purpose of
the Schedule, Recording Dollar Amounts, Who Must
Complete, Definitions and Examples have been added
while various other areas of the instructions and form have
been revised or reorganized to provide additional information or clarity to the form and instructions.

GENERAL INFORMATION
PURPOSE OF SCHEDULE
PA Schedule 19 is used to determine if the gain on the sale
of a principal residence meets the specific requirements to
be excluded from taxable income on the PA-40, Personal
Income Tax Return. Per Act 45 of 1998, the entire gain may
be excluded, when applicable, as Pennsylvania does not
follow the federal gain limits. PA Schedule 19 is also used
to calculate the amount of taxable gain on the sale of a principal residence that does not meet the requirements or
when the seller used the property at any time during the
ownership period as business property. PA Schedule 19
may also be used to determine the amount of gain from the
sale of a principal residence to include on Line 8, of Section
III of PA-40 Schedule SP, Special Tax Forgiveness, or to
include the amount of any gain or loss from the sale of a
principal residence in Line 8 of the PA-1000, Property Tax
or Rent Rebate Claim Form.

RECORDING DOLLAR AMOUNTS
Show money amounts in whole-dollars only. Eliminate any
amount less than $0.50 and increase any amount that is
$0.50 or more to the next highest dollar.

WHO MUST COMPLETE
PA Schedule 19 must be completed and included with the
PA-40, Personal Income Tax Return, when a sale of a principal residence does not meet the requirements for exclusion or when the Additional Limitations apply. PA Schedule
19 must also be completed and included with the PA-40 if
part or all of the residence was used for a business purpose. PA Schedule 19 should be completed, but is not
required to be included, with a PA-40 return when all the
Requirements for Exclusion of Gain as described later are
met for exclusion of 100% of the gain. All taxpayers should
complete the Residential Use Questions to determine if PA
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Schedule 19 must be completed and included with their
return.

GENERAL INSTRUCTIONS
REQUIREMENTS FOR EXCLUSION OF GAIN
In order for the gain to be excluded, a taxpayer must meet
each of the following four requirements:
1. Date of Disposition. The date of disposition of the
principal residence must be after Dec. 31, 1997.
2. Use. The taxpayer used or had use of the residence
as the principal residence for a total of at least two
years during the five-year period preceding the date
of disposition. Refer to Examples 1 and 2 in the
EXAMPLES section of the instructions for additional
information.
3. Ownership. The taxpayer owned or had owned the
residence as a principal residence for a total of at
least two years during the five-year period preceding
the date of disposition. Refer to Examples 3 and 4 in
the EXAMPLES section of the instructions for additional information.
4. Prior Disposition. The taxpayer did not sell another
principal residence during the two years preceding
the date of disposition. Refer to Examples 5 and 6 in
the EXAMPLES section of the instructions for additional information.
IMPORTANT: The requirements for this exclusion
apply individually. This means that married taxpayers
reporting the sale of their principal residence on separate
PA tax returns must individually meet all the requirements
to qualify for this exclusion. If only one spouse meets all the
requirements, the other spouse must pay tax on his or her
share of the gain on his or her separate PA tax return.
However, if married taxpayers report the sale of their principal residence on a joint PA tax return, only one spouse
must meet the requirements. If unmarried joint owners sell
a principal residence, each owner must meet the requirements separately.
NOTE: The taxpayer does not have to meet the use
and ownership requirements simultaneously.
However, the taxpayer must meet both during the five-year
period preceding the date of the sale. A taxpayer may lease
a property as a personal residence for one year and then
purchase the residence. The taxpayer then lived in the residence for only one of the next four years. The taxpayer still
qualifies for the exclusion. The taxpayer lived in the residence for a total of two years, one as renter and one as the
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owner, and owned the residence for the last four years
before the sale.

taxpayer must complete the Section I of PA Schedule 19 to
determine residential use percentage.

EXCEPTIONS
Unforeseen Circumstances
A sale of a second principal residence is not disqualifying if
the sale is due to an unforeseen change in employment,
health, or severe financial hardship. An unforeseen change
is one caused by an accident, illness, loss of property,
casualty or other unexpected event beyond the control of
the taxpayer. Refer to Example 7 in the EXAMPLES section
of the instructions for additional information.

More Than One Home
The residence that the taxpayer physically occupied and
personally used the most during the five years preceding
the sale is the principal residence. Moving furniture and
personal belongings into a residence does not qualify as
use. Even if the taxpayer’s family physically occupied the
residence, it is not the taxpayer’s principal residence if he
or she did not occupy and use it. Refer to Example 8 in the
EXAMPLES section of the instructions for additional information.

ADDITIONAL LIMITATIONS
Current or Previous Business Use
No portion of a principal residence that was leased or used
for business purposes with the intention to realize a profit,
and was subject to the allowance for depreciation during
the taxpayer’s holding period, qualifies for the exclusion.
For example, a taxpayer who claimed and received allowable office-at-home expenses, including depreciation, may
not exclude the gain on that portion of the principal residence. This applies even if the taxpayer stopped claiming
office-at-home expenses. If current or previous business
use, a taxpayer must complete Section I of PA Schedule 19
to determine the residential use percentage.
Deceased Taxpayer Sale
The authorized representative of a decedent may claim this
exclusion on the final PA tax return of an otherwise qualifying decedent, only if the decedent entered into the sales
agreement before death. The decedent’s estate or trust
may not exclude the gain from the sale of the decedent’s
principal residence.
Mixed Use Property
If a taxpayer sells property that he or she used partly as a
principal residence and partly for business, commercial,
industrial, rental, investment, or other nonresidential purposes, then:
1. The taxpayer determines the gain separately on the
portion of the property used for residential purposes
and the portion of the property used for other purposes; and
2. The gain attributable to the property used for nonresidential purposes does not qualify for the gain exclusion. The taxpayer must report the gain or loss on PA
Schedule D.
Such mixed-use property includes, but is not limited to, a
sole proprietor’s residence above his retail store; a duplex
where the owner rents one unit and lives in the other; and
an office or licensed childcare facility located within a residence. Mixed use also includes property where the land
surrounding the residence is more than the taxpayer reasonably needs for a residence. The land surrounding a
farmhouse that the taxpayer uses for commercial agriculture, livestock breeding, or dairy purposes is not necessary
for residential purposes. If current or previous mixed use, a
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DEFINITIONS
BUSINESS PURPOSE
Business purpose includes, but is not limited to, whenever
part or all of the property was used at any time during the
seller’s ownership period as a home office, storage area for
business related property, store front, rental property,
industrial, commercial, investment or any other nonresidential purpose. Property used for business purposes may
have had related income and/or expenses reported and
deducted on PA-40 Schedule C, Profit or Loss from
Business or Profession, PA-40 Schedule UE, Allowable
Employee Business Expenses, PA-40 Schedule F, Farm
Income and Expenses, or PA-40 Schedule E, Rents and
Royalty Income (Loss), during the ownership period.
DATE OF DISPOSITION
The date of disposition is the date the buyer accepts the
deed and title passes from the seller to the buyer, usually
the date of settlement. If the seller postpones the delivery
of the deed, the date of disposition is the date when possession and the burdens and benefits of ownership pass
from the seller to the buyer. For a condemnation, the date
of disposition is the date when the taxpayer receives the
condemnation proceeds. For destruction or casualty loss,
the date of disposition is the date when the taxpayer
receives the casualty insurance proceeds or damages.
DISPOSITION
A disposition includes a sale, exchange, taking by eminent
domain, destruction, foreclosure or other disposition of
property giving rise to a taxable gain.
INCIDENTAL RENTAL
Incidental rental refers the rental period related to the sale
of a home where the buyer or the seller occupy the home
for a short period of time immediately before or after the
date of disposition. It does not refer to circumstances where
a buyer enters a rent-to-own contract prior to the actual purchase of a residence or where a property is rented out until
sold.
PRINCIPAL RESIDENCE
The residence that the taxpayer physically occupied and
personally used the most during the five years preceding
the sale is the principal residence. Moving furniture and
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personal belongings into a residence does not qualify as
use. Even if the taxpayer’s family physically occupied the
residence, it is not the taxpayer’s principal residence if he
or she did not occupy and use it.
RESIDENCE
A residence is a house, lodging, or other place of habitation, including a trailer or condominium, that has independent or self-contained cooking, sleeping and sanitation facilities that the taxpayer physically occupied and used for residential purposes at some time during the past five years.
A residence is not a property that the taxpayer:
• Does not occupy; or
• Uses only on a sporadic and transient basis; or
• Uses only for a definite and promptly accomplishable
purpose.
USE
Use refers to consistent, continual occupancy by the taxpayer for residential purposes. In determining whether a
residence was occupied and used for residential purposes,
disregard absences of less than ninety consecutive days if
the property is not made available for rent during the
absence. Absences of any length are also not required to
be considered if the taxpayer is in a hospital, nursing home,
or a personal care facility, and the residence is not made
available for rent during the absence.

SCHEDULE INSTRUCTIONS
IDENTIFICATION INFORMATION
NAME(S)
Enter the taxpayer’s name as shown on the PA-40. Include
both the taxpayer and spouse’s names if filing a joint return.
ADDRESS
Enter the address of the residence being sold in the appropriate spaces.
PRIMARY TAXPAYER’S SOCIAL SECURITY NUMBER
Enter the Social Security number (SSN) of the primary taxpayer (name shown first on the PA-40, Personal Income
Tax Return).
SPOUSE’S SOCIAL SECURITY NUMBER
Enter the spouse’s SSN if filing a joint return.

LINE INSTRUCTIONS
SECTION I
RESIDENTIAL USE QUESTIONS
Answer all of the questions as noted in Section I of PA
Schedule 19. If the taxpayer meets all the requirements for
the exclusion of the gain on the sale of a principal residence
but the property was used for residential and other purposes, Questions 5 and 6 must be answered, If the answer to
either Question 5 or 6 is “Yes”, Lines 1a through 3 must also
be completed as necessary.
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If the property was sold after Dec. 31, 1997, the answers to
Questions 2 and 3 are “Yes”, and the answers to Questions
4, 5 and 6 are “No”, the taxpayer qualifies for the exclusion
of the gain on the sale of a principal residence. PA
Schedule 19 is not required to be completed in its entirety
and should not be included with the taxpayers PA-40,
Personal Income Tax Return. However, taxpayers that typically qualify for Tax Forgiveness using PA-40 Schedule SP,
Special Tax Forgiveness, should complete Section II of PA
Schedule 19 to determine their gain. The gain determined
in Section II is required to be included on Line 8 of PA-40
Schedule SP. In addition, individuals who request a property tax rebate on the PA-1000, Property Tax or Rent Rebate
Claim Form, should complete Section II of PA Schedule 19
to determine their gain or loss. The gain or loss determined
in Section II is also required to be included with all other
gains and losses in Line 8 of the PA-1000.

QUESTION 1
Enter the date the residence was sold. If the property was
sold after Dec. 31, 1997, go to Question 2. If the property
sold prior to Jan. 1, 1998, the sale of the principal residence
may not qualify for an exclusion of the gain. Contact the
department for alternative tax rules with respect to reporting
the gain on the sale of a principal residence for sales prior
to Jan. 1, 1998. In addition, skip Questions 2, 3 and 4 and
go to Questions 5 and 6. If the answer to Question 5 and/or
Question 6 is “Yes”, complete the remainder of the schedule to determine the gain or loss on the sale of the business
use portion of the property on Line 17 only.

QUESTION 2
If the answer to Question 2 is “Yes”, go to Question 3. If the
answer to Question 2 is “No”, the sale of the principal residence does not qualify for an exclusion of the gain. Go to
Question 5 and complete the remainder of the schedule.
Refer to Examples 1 and 2 in the EXAMPLES section of the
instructions for additional information.

QUESTION 3
If the answer to Question 3 is “Yes”, go to Question 4. If the
answer to Question 3 is “No”, the sale of the principal residence does not qualify for an exclusion of the gain. Go to
Question 5 and complete the remainder of the schedule.
Refer to Examples 3 and 4 in the EXAMPLES section of the
instructions for additional information.

QUESTION 4
If the answer to Question 4 is “No”, go to Question 5. If the
answer to Question 4 is “Yes”, the sale of the principal residence does not qualify for an exclusion of the gain unless
there are unforeseen circumstances. Go to Question 5 and
complete the remainder of the schedule. Refer to Examples
5, 6 and 7 in the EXAMPLES section of the instructions for
additional information.
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QUESTION 5

LINE 2c

If the property sold also included other buildings or land
that was used for business purposes such as farming operations, rental of a garage, business property storage, business office, commercial enterprise, industrial or manufacturing reason, investment or any other nonresidential purpose during the seller’s ownership period, answer the
question “Yes”. Lines 1a through Line 1c must also be completed. If only a residence was sold, answer the question
“No”.

Divide the amount on Line 2a by the amount on Line 2b
and enter the result here and also enter on Line 9 of
Section II of PA Schedule 19 when Question 5 is answered
“No”. Enter the amount as a decimal ratio entering the ratio
out to six decimal places.

QUESTION 6
If the property sold consisted only of a principal residence
and during the seller’s ownership period any part of the
principal residence was used at any time as a home office,
rental property (other than incidental rental), storage location for business property, storefront or any other nonresidential purpose, answer the question “Yes”. Lines 2a
through 2c must also be completed. If the principal residence had no current or prior business purpose or use,
answer “No”.

LINE 1a
Line 1a must be completed if the answer to Question 5 only
is “Yes” or the answers to both Questions 5 and 6 are “Yes”.
Enter the fair market value of the portion of the property
used by the seller for residential purposes only.

LINE 1b
Line 1b must be completed if the answer to Question 5 only
is “Yes” or the answers to both Questions 5 and 6 are “Yes”.
Enter the fair market value of the entire property.

LINE 1c
Divide the amount on Line 1a by the amount on Line 1b
and enter the result here and also enter on Line 9 of
Section II of PA Schedule 19 when Question 6 is answered
“No”. Enter the amount as a decimal ratio entering the ratio
out to six decimal places.

LINE 2a
Line 2a must be completed if the answer to Question 6 only
is “Yes” or the answers to both Questions 5 and 6 are “Yes”.
Enter the square footage of the portion of the property used
just for residential purposes. Do not include any portion of
the property used for business purposes at any time during
the seller’s ownership period

LINE 2b
Line 2b must be completed if the answer to Question 6 only
is “Yes” or the answers to both Questions 5 and 6 are “Yes”.
Enter the square footage of the entire residence.
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LINE 3
Line 3 must be completed if the answer to both Questions
5 and 6 are “Yes”. Multiply the amount on Line 1c by the
amount on Line 2c. Enter the result here and on Line 9 of
Section II of PA Schedule 19. Enter the amount as a decimal ratio entering the ratio out to six decimal places.

SECTION II
COMPUTING THE GAIN OR LOSS

LINE 4
Enter the date the residence was acquired.

LINE 5
Enter the face value of any seller financed mortgage, note,
or other financial instrument on which the seller will receive
periodic payments of principal and/or interest from this
sale. Interest received on a seller financed mortgage is
excludable for PA personal income tax purposes to the
extent the gain on the sale of the principal residence is
excludable. If the gain determined on Line 16 is excludable,
multiply the total interest received by the Residential Use
Ratio to obtain the nontaxable (excludable) interest
received. Subtract the non-taxable interest amount from
the total interest received to obtain the taxable interest
amount. Any nontaxable interest received is included in
Line 2 of Section III of PA-40 Schedule SP, Special Tax
Forgiveness. The nontaxable interest must also be included in Line 7 of the PA-1000, Property Tax or Rent Rebate
Claim Form.

LINE 6
If the principal residence was owned with another person or
persons, enter the taxpayer’s ownership interest as a decimal ratio. Refer to Examples 9 and 10 in the EXAMPLES
section of the instructions for additional information. If the
property was only owned by the taxpayer or the property is
being sold by a taxpayer and spouse filing a joint return,
enter the ratio as 1.000000.

LINE 7
Enter the gross sales price or fair market value of cash and
property received for the entire property, including the portion of the property used for nonresidential purposes, less
any applicable expenses of sale, real estate commissions,
transfer taxes, etc.
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LINE 8

LINE 15

Multiply the amount on Line 7 by the ratio on Line 6. This is
the portion of the sale proceeds attributable to the taxpayer.

Multiply Line 14 by the ownership ratio on Line 6. This is the
taxpayer’s portion of the basis in the residential use portion
of the property.

LINE 9
Enter the Residential Use Ratio, from Line 1c, Line 2c or
Line 3 above as appropriate. If the answers to Questions 5
and 6 were both “No”, enter the ratio as 1.000000.

LINE 10
Multiply Line 8 by Line 9 and enter the result. This is the
residential use portion of the sale proceeds.

LINE 11
Subtract Line 10 from Line 8 and enter the result. This is the
nonresidential use portion of the proceeds from the sale of
the residence. If the answers to Questions 5 and 6 were
both “No”, this amount will be zero.

LINE 12
Enter the adjusted or alternative basis of the entire property. This usually is the same basis used for federal income
tax purposes. Generally, the adjusted basis will be the original cost of the property plus the cost of any improvements
less any accumulated depreciation allowed or allowable on
the property. If the property was acquired before June 1,
1971, the alternative basis must be determined for Line 12
using the methods prescribed on PA Schedule D-71, Gain
or Loss on Property Acquired Prior to June 1, 1971, (Form
REV-1742) for determining Alternative Basis and
Determination of Fair Market Value as of June 1, 1971. The
alternative basis is Column e on PA Schedule D-71.

LINE 13
Enter the adjusted or alternative basis of the property used
for nonresidential purposes. Adjusted basis is usually the
original cost of the property, plus the cost of any improvements less the accumulated depreciation allowed or allowable on the property. If the property was acquired before
June 1, 1971, the alternative basis must be determined for
Line 12 using the methods prescribed on PA Schedule
D-71, Gain or Loss on Property Acquired Prior to June 1,
1971, (Form REV-1742) for determining Alternative Basis
and Determination of Fair Market Value as of June 1, 1971.
The alternative basis is Column e on PA Schedule D-71. If
the taxpayer answered “No” to Questions 5 and 6, this
amount will be zero.

LINE 14
Subtract Line 13 from Line 12. This is the residential use
portion of the adjusted or alternative basis.
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LINE 16
Subtract Line 15 from Line 10 and enter the result. This is
gain or loss on the taxpayer’s portion of the property.
If the answer to either Question 2 or 3 is “No” or the answer
to Question 4 is “Yes”; this is the taxable gain on the sale of
a principal residence that is required to be reported. Report
the taxable gain on the sale of a principal residence on Line
7 of PA Schedule D, Sale, Exchange or Disposition of
Property. A loss on the sale of a principal residence is a personal loss is not an allowable loss for PA personal income
tax purposes.
If the answers to Questions 2 and 3 are “Yes” and the
answer to Question 4 is “No”; this is the excludable gain or
loss on the sale of the principal residence.
Excludable gains must be reported on Line 8, of
Section III of PA-40 Schedule SP, Special Tax
Forgiveness. Excludable gain or loss must also be included
in Line 8 of the PA-1000, Property Tax or Rent Rebate
Claim Form. Refer to Example 11 in the EXAMPLES section of the instructions for additional information.

LINE 17
Subtract Line 13 from Line 11. This is the gain on the sale
of the business use portion of the property. Report the gain
on Line 1 of PA Schedule D, Sale, Exchange or Disposition
of Property. Refer to Example 12 in the EXAMPLES section
of the instructions for additional information.

EXAMPLES
EXAMPLE 1: John bought a house in Harrisburg on
January 1, 1995. He lived there until July 1, 1996. He
changed jobs and moved to Pittsburgh in July 1996. He
maintained his Harrisburg home. He did not rent it or use it
for any other purpose. He moved back to his Harrisburg
residence in 1997 and lived there until he sold it in 1999.
John meets the requirement for using his house as his principal residence for at least two years during the five-year
period preceding the sale.
EXAMPLE 2: Use the same facts as in Example 1, except
John never moved back to his Harrisburg home. He does
not meet the use requirement for this exclusion. Even
though he never rented his house or used it for any other
purpose, John must pay PA income tax on any gain he realized from the sale of his Harrisburg home.
EXAMPLE 3: Mary leased one half of a house in State
College. She resided there since 1994. In 1996, she bought
the entire property. She used the entire property as her
principal residence until she sold it in 1999. Mary meets the
ownership requirement for this exclusion.
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EXAMPLE 4: Use the same facts as in Example 3, except
Mary bought the house in 1998. She does not meet the
ownership requirements, even though she used the entire
house as her principal residence. She must pay PA income
tax on any gain she realized from the sale of her State
College home.
EXAMPLE 5: Rob and Ann owned and lived in a house in
Johnstown. In February 1996, they moved to Erie and
bought a new house. In August 1996, they sold their
Johnstown home. They owned and used the Erie home as
their principal residence until they sold it in June 1999.
They meet all the requirements for this exclusion.
EXAMPLE 6: Use the same facts as in Example 5, except
Rob and Ann sold their Johnstown home in August 1997.
They do not meet the prior disposition requirement for this
exclusion. They owned and used their house for at least
two years during the five-year period preceding the sale.
However, they must pay PA income tax on any gain they
realized from the sale of their Erie home, because they sold
a previous principal residence within two years of their
1999 sale.
EXAMPLE 7: Use the same facts as in Example 6, except
that Rob and Ann sold their Erie principal residence
because Ann’s employer relocated its operations to
Williamsport. They qualify for this exclusion because of an
unexpected change in employment.
EXAMPLE 8: Bill and Helen purchased a home in
Pittsburgh in January 1995. Bill began working in
Philadelphia in March 1995 and leased an apartment there.
He commuted to Pittsburgh on weekends, holidays, and
vacations. In January 1999, Bill and Helen sell their
Pittsburgh residence. Helen meets the use and ownership
requirements for the exclusion. Bill meets the ownership
requirement. Bill does not meet the use requirement. He
only used his Pittsburgh home for two months in 1995. His
principal residence was his apartment in Philadelphia.
Helen qualifies for the exclusion on her half of the gain from
the sale of the Pittsburgh residence. Bill must pay PA
income tax on his half of the gain. However, if Helen and
Bill file a joint PA tax return, they both qualify for the full
exclusion.
EXAMPLE 9: The primary taxpayer and spouse jointly own
their home that had business use during their ownership
period. They are electing to file separate PA-40, Personal
Income Tax Returns. Each qualify for the exclusion but
must report the gain on the business use portion. Their
ownership ratios are 0.50.

EXAMPLE 11: Jason and Jamie sold their home on April
23, 2019. They purchased the home on January 31, 1980
and used the home as their principal residence continuously until it was sold. They did not own or sell another principal residence during the last two years of their ownership
period. They purchased the property for $50,000 in 1980
and the net sales price after expenses of sale for the property was $65,000. Jason and Jamie offered a seller
financed mortgage to the buyer with a face value of
$57,000. Jason and Jamie were the sole owners of the
property. Jason and Jamie qualify for the exclusion of the
gain on the sale of their principal residence of $15,000.
In 2019, Jason and Jamie are retired and are both over 67
years of age and have $10,000 of interest and dividend
income of which $1,000 is nontaxable for PA personal
income tax purposes as it was from the mortgage on the
sale of their home. They have no other income except pension income of $5,000 and Social Security income of
$18,000 and $15,000, respectively. Jason and Jamie do
not qualify for Tax Forgiveness in 2019 because they must
include the gain on the sale of their principal residence on
Line 8 of Section III of PA-40 Schedule SP, and $1,000 of
nontaxable interest in Line 2 of PA-40 Schedule SP.
Therefore, their total eligibility income for determining Tax
Forgiveness is $25,000 ($9,000 taxable income plus
$1,000 nontaxable interest plus $15,000 of excludable gain
on the sale of a principal residence).
EXAMPLE 12: Same home and income facts as Example
11 except that Jason had a home office during tax years
1993 through 2012. Jason deducted a depreciation
expense on 10% of his home on PA-40 Schedule UE,
Allowable Employee Business Expenses, on their tax
returns for each of those 20 tax years. Jason used the
straight-line depreciation method with a 40-year useful life
and the accumulated depreciation was $2,500 for the 20
years. The total square footage of the home was 1,000
square feet.
Jason and Jamie would be able to exclude $11,000 from
the sale of their principal residence. They would also be
required to report $4,000 of gain on the sale of the business use portion of the home and $100 of interest income
from their seller financed mortgage. Based upon the eligibility income rules, Jason and Jamie would not qualify for
Tax Forgiveness on PA-40 Schedule SP, as their eligibility
income would still be $25,000 ($13,100 of taxable income,
$900 of nontaxable interest income and $11,000 of excludable gain on the sale of a principal residence).

EXAMPLE 10: A taxpayer and her brother and sister equally own a home. The taxpayer is the only one who lives in
the home. The taxpayer meets all the requirements for the
exclusion. The brother and sister do not qualify. The taxpayer’s ownership ratio is 0.333333.

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PA-19

www.revenue.pa.gov