Under the current rules, the relocation income is added to the W-2 and taxed up front. This may be the large amount that you are seeing.
If you owned and lived in the home for a total of two of the five years before the sale, then up to $250,000 of profit is tax-free (or up to $500,000 if you are married and file a joint return). See this TurboTax Help.
If you do not meet the eligibility test, IRS Publication 523, page 6, states that the Work-Related Move exception may qualify you for a partial exclusion of gain.
Does Your Home Qualify for a Partial Exclusion of Gain?
If you don't meet the Eligibility Test, you may still qualify for a partial exclusion of gain. You can meet the requirements for a partial exclusion if the main reason for your home sale was a change in workplace location, a health issue, or an unforeseeable event.
Work-Related Move
You meet the requirements for a partial exclusion if any of the following events occurred during your time of ownership and residence in the home.
- You took or were transferred to a new job in a work location at least 50 miles farther from the home than your old work location. For example, your old work location was 15 miles from the home and your new work location is 65 miles from the home.
- You had no previous work location and you began a new job at least 50 miles from the home.
- Either of the above is true of your spouse, a co-owner of the home, or anyone else for whom the home was their residence.
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