Deductions & credits

pk · ‎January 20, 2025

section 121 says :

(a)Exclusion

Gross income shall not include gain from the sale or exchange of property if, during the 5-year period ending on the date of the sale or exchange, such property has been owned and used by the taxpayer as the taxpayer’s principal residence for periods aggregating 2 years or more.

(b)Limitations

(1)In general

The amount of gain excluded from gross income under subsection (a) with respect to any sale or exchange shall not exceed $250,000.

(2)Special rules for joint returns In the case of a husband and wife who make a joint return for the taxable year of the sale or exchange of the property—

(A)$500,000 Limitation for certain joint returns Paragraph (1) shall be applied by substituting “$500,000” for “$250,000” if—

(i)

either spouse meets the ownership requirements of subsection (a) with respect to such property;

(ii)

both spouses meet the use requirements of subsection (a) with respect to such property; and

(iii)

neither spouse is ineligible for the benefits of subsection (a) with respect to such property by reason of paragraph (3).

(B)Other joint returns

If such spouses do not meet the requirements of subparagraph (A), the limitation under paragraph (1) shall be the sum of the limitations under paragraph (1) to which each spouse would be entitled if such spouses had not been married. For purposes of the preceding sentence, each spouse shall be treated as owning the property during the period that either spouse owned the property.

(3)Application to only 1 sale or exchange every 2 years

Subsection (a) shall not apply to any sale or exchange by the taxpayer if, during the 2-year period ending on the date of such sale or exchange, there was any other sale or exchange by the taxpayer to which subsection (a) applied.

Summary of all this is that once you satisfy the ownership and use requirement ( plus only one every two years ), you are eligible. There is no requirement for domicile. The state may however require that.

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