Single homeowners can exclude up to $250,000 of capital gains from the sale of their primary residence. Married couples filing jointly can exclude up to $500,000. To qualify, you must have owned and lived in the home as your primary residence for at least two of the last five years before the sale.
Eligibility Requirements
The ownership and use test requires that you owned the home and lived in it as your primary residence for at least 24 months out of the five years before the sale. The 24 months do not have to be consecutive. You can only claim the exclusion once every two years.
Calculating Your Exclusion
Calculate your gain by subtracting your adjusted cost basis (purchase price plus improvements) from the sale price (minus selling costs). If your gain is $300,000 as a single filer, you pay capital gains tax on $50,000. Married filers with a $300,000 gain pay zero tax.
Exceptions and Special Circumstances
Partial exclusions are available if you sell due to a change in employment, health reasons, or unforeseen circumstances like divorce, multiple births, or death. Members of the military, Foreign Service, and intelligence community may qualify for extended suspension periods during qualifying service.