HF4000

Purpose

Introduce a new subtraction from Minnesota taxable income for part of the gain from selling a principal residence. Specifically, it allows the amount of gain that exceeds the federal Section 121 exclusion to be subtracted from Minnesota income.

Key provisions

• Adds Subdivision 40 to Minnesota Statutes 2024, section 290.0132.
• Subtraction applies to the amount of gain from the sale of a principal residence that exceeds the Internal Revenue Code Section 121 limit.
• The Section 121 limit referenced is the federal exclusion of up to $250,000 for single filers or $500,000 for married couples filing jointly.
• Defines “principal residence” as property that qualifies for the Section 121 exclusion (the federal gross-income exclusion for home sales).

How it would work

• If a person sells a principal residence and the gain G is greater than the federal exclusion limit L (L = $250,000 or $500,000, depending on filing status), then the amount G − L would be subtracted from Minnesota gross income.
• Gains up to the federal exclusion limit are not described as part of the subtraction, so the provision specifically targets the amount above the federal exclusion.

Significance and potential impact

• Creates a new Minnesota tax deduction tied to gains from selling a principal residence, specifically for the portion above the federal exclusion.
• Could reduce Minnesota taxable income and state taxes for homeowners who sell a principal residence with gains exceeding the federal exclusion.
• Relies on federal Section 121 terminology and does not modify federal rules; it defines the term “principal residence” to match the federal exclusion.

Relevant Terms capital gains, sale, principal residence, subtraction, Minnesota Statutes 290.0132, Subd.40, Internal Revenue Code Section 121, exclusion from gross income, 250,000, 500,000, single, married filing jointly, home sale exclusion, tax deduction, taxable income, Minnesota.