"How do I take advantage of the Capital Gains exemption for a home sale"
All income received in 2025 is reported on your 2025 tax return. In Turbotax, you should report the sale of "your home" in the section for Sales of Assets and other property. You will report your original cost, the cost of any improvements, and the selling price (which you can reduce by certain closing costs). Turbotax will automatically apply the exclusion. If your gain is less than the exclusion AND you did not receive a 1099-S at the closing, Turbotax will probably leave the entire sale off your return. If your gain is more, it will be reported and you will be taxed on the taxable portion. (But you should always report all the details in the program and let the program do the work for you.)
Tax penalties
If you are going to owe some capital gains tax, you need to make an estimated payment when you close. Tax payments are supposed to be pay-as-you-go, and if you have a lump sum of income and don't make a payment, may be assessed a penalty for under-payment, even if you pay in full when you file your return. You can make a payment at www.irs.gov/payments.
If your other income, plus the taxable part of your capital gain, is less than $600,000, your estimated payment should be 15%. If your income is more than $600,000, your estimated payment should be 15% of the amount under $600,000 and 20% of the amount over $600,000.
For example, you bought the house 18 years ago for $300,000--it is worth today $1 million. Your gain is $700,000, of which $500,000 is excluded. So the taxable part of the gain is $200,000. As long as your other income is less than $400,000, you should make an estimated payment of $30,000 after you receive the proceeds. (Technically, if the closing is before August 31, the payment is due Sept 15, and if the closing is between Sept and December, the payment is due January 15.)
You will also need to select "calculate my penalty" from the page of Special Circumstances, even if it does not come up automatically, and use the "annualized income" method to calculate your penalty. This form will show the IRS that even though your tax payments were not evenly spread out over the year, your income was also not evenly spread out, but your payments matched your income as it came in.
