Tax Administration Policy - Exemption on Sale of Primary Residence

Purpose

This written policy provides guidance for claiming the primary residence exemption provided in Portland City Code (PCC) Section 7.02.400 F.1. and Multnomah County Code (MCC) § 12.400(G)(1). These code sections exempt income from the sale of a primary residence from the Business License Tax (BLT) and Multnomah County Business Income Tax (MCBIT). 

Policy

Internal Revenue Code (IRC) §121 provides an exclusion from income on the sale of a taxfiler’s principal residence. Qualifying for the IRC §121 exclusion does not determine whether the sale of a property qualifies for the BLT/MCBIT primary residence exemption.

For purposes of the exemption, a taxfiler’s primary residence is the taxfiler’s permanent place of abode occupied:

• the majority of the time for the 18 months leading up to, and
• at the time of the sale.

Whether a property qualifies for the primary residence exemption will be based upon the applicable facts and circumstances of the taxfiler and the property sold. 

Vacant Land

Following the United States Tax Court decisions in O'barr v. Commissioner 44 T.C. 501 (1965) and Hale v. Commissioner 44 T.C.M. 1116 (1982), the sale of a primary residence does not include the sale of land that does not include the taxfiler’s place of abode at the time of the sale. 

Property Used in Part as a Primary Residence

The sale of a primary residence doesn’t include any portion of the property sold (separate or segregated from the portion used for residential purposes) that was used for nonresidential purposes. The gain allocable to the residential and non-residential portions of the property will follow the method and examples in Treasury Regulation §§ 1.121-1(e)(3) and 1.121-1(e)(4). The gain attributable to any portion of a property that qualifies as a primary residence is fully exempt.

The sale of property that does not qualify as a primary residence for purposes of the BLT/MCBIT but qualifies for an IRC §121 exclusion is only taxed on the portion of gain, if any, included in federal and Oregon taxable income.

Example 1: Ezra sells his Portland home for $400,000 gain. Ezra files a married filing joint tax return and is eligible for the IRC §121 exclusion of $500,000. Ezra moved to the coast two years prior and rented the Portland property. The Portland residence is not his primary residence and is not exempt under PCC 7.02.400 F. 1. and MCC §12.400 (G) (1). Ezra is exempt under PCC 7.02.400 C. since his “gross income” is under $50k (since the gain is excluded from federal/state tax).

Example 2: Misha sells her Portland home for $650,000 gain. She files a married filing joint tax return and is eligible for the IRC §121 exclusion of $500,000. Misha and her spouse moved to the coast two years prior to selling the Portland property. During the two years the Portland property was either vacant or occupied by someone other than Misha and her spouse. The Portland residence is not her primary residence and is not exempt under PCC 7.02.400 F. 1. and MCC §12.400 (G) (1). Her gross income from this sale is $150,000 (portion of the gain exceeding the federal/state income exclusion) and is greater than the gross receipts thresholds. Misha will owe BLT/MCBIT tax on the gain taxable to the IRS/Oregon ($150K – The $650,000 gain less the $500K exclusion).

Example 3: Taylor sells her Portland home for a $750,000 gain. Taylor files a married filing joint tax return and is eligible for the IRC §121 exclusion of $500,000. She moved to Corvallis two years ago and rented the Portland property. The Portland residence is not her primary residence and is not exempt under PCC 7.02.400 F. 1. and MCC §12.400 (G) (1). Her gross income from this sale is $250,000 (portion of the gain exceeding the federal/state income exclusion) and is greater than the gross receipts thresholds. Taylor will owe BLT/MCBIT tax on the gain taxable to the IRS/Oregon ($250,000 – The $750,000 gain less the $500,000 exclusion).

Example 4: Roz sells their Portland home for a $1m gain. Roz rented out the home before moving into the home. They lived in it for two years prior to the sale. Roz files Single and is eligible for a partial IRC §121 exclusion is $100,000. Since Roz lived in their home for the 18 months prior to selling the home, it was their primary residence, and the full gain is exempt from BLT/MCBIT under 7.02.400 F.1. and MCC §12.400 (G) (1).

Example 5: Martin sells his Portland home for $400,000 gain. He only lived there for 12 months prior to the sale and is not eligible for any IRC §121 exclusion. Martin lived in his home until he had to relocate and sell his home. While he does not qualify for the IRC §121 exclusion, the facts and circumstances indicate this was Martin’s primary residence and he is exempt from BLT/MCBIT under 7.02.400 F.1. and MCC §12.400 (G) (1).

Note: It is implicit that the taxfiler must own the taxfiler’s primary residence which is sold for purposes this exemption. Aside from this requirement, Oregon Administrative Rule 150-316-0025(1)(b) provides guidance on what constitutes a taxfiler’s “permanent place of abode.”

08/25/2025                            Thomas W. Lannom
Date                                        Director

References:
PCC 7.02.400 F. 1., MCC § 12.400(G)(1) 

History:
Adopted: 10/11/2023
Amended: 08/25/2025