Sale of Home Exclusion
If you meet specific requirements, you can exclude the gains from selling your primary home from your income to reduce your taxable gain. Married filers can exclude up to $500,000 of capital gains, while others can exclude up to $250,000.
Commonly referred to as the IRS Primary Residence Exclusion or Section 121 Exclusion.
Do I Qualify for the Sale of Home Exclusion?
Homeowners who are selling their primary home can use this strategy if they have lived in the house for at least two out of the last five years. They can reduce their capital gains from the sale up to the exclusion amount.
2022 Sale of Home Exclusion Details
Taxpayers can exclude up to $500,000 of capital gains from any gains on the sale of their primary residence if they meet specific requirements. To qualify the seller must have lived in the home as their primary residence for at least two of the past five years at the time of sale. If the seller is considered active duty military, the time is extended to two out of the previous ten years at the time of the sale.
The amount that can be excluded depends on the seller's filing status. Sellers filing as married filing jointly can exclude up to $500,000 of the gain. Sellers of any other filing status can exclude up to $250,000. Individuals who are married filing separately may each claim the $250,000 exclusion.
The exclusion is deducted from the gains created from the sale of the property. The gain is equal to the property's sale price, less the original purchase price for the property increased by any capital improvements added to the property during the sellers' ownership of the property (the adjusted basis of the property).
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• Excludes up to $500,000 from taxable gain
• Can only be used once every two years
• If married filing separately, each spouse must claim one-half and qualify independently for the “lived-in” test.
Assumptions When Taking the Sale of Home Exclusion
• The homeowners have not used the exclusion in the last two years
• The homeowner is only claiming one residence
• None noted.
Requirements to Claim the Sale of Home Exclusion
• Must be your primary residence - not allowed for vacation homes
• Must have lived in the house for at least two of the last five years (may be extended to two of the previous ten years if active duty military)
• Must not have used the strategy in the previous two years
Business Entities That Can Claim the Sale of Home Exclusion
The material discussed on this page is meant for general illustration and/or informational purposes only and is not to be construed as investment, tax, or legal advice. You must exercise your own independent professional judgment, recognizing that advice should not be based on unreasonable factual or legal assumptions or unreasonably rely upon representations of the client or others. Further, any advice you provide in connection with tax return preparation must comply in full with the requirements of IRS Circular 230.