Qualifying for the Exclusion
In general, to qualify for the exclusion, you must meet both the
ownership test and the use test. You are eligible for the Section
121 exclusion if you have owned and used your home as your main home
for a period aggregating at least two years out of the five years
prior to its date of sale. You can meet the ownership and use tests
during different 2-year periods. However, you must meet both tests
during the 5-year period ending on the date of the sale. Generally,
you are not eligible for the exclusion if you excluded the gain from
the sale of another home during the two-year period prior to the sale
of your home. Refer to Publication 523 for the complete
eligibility requirements, limitations on the exclusion amount, and
exceptions to the two-year rule.
The "ownership" test requires you to have owned the home for two years.
To pass the "use" test, you must have lived in the home as your primary
residence for two of the past five years. Your two years can be a
combined total of 760 nonconsecutive days over a five-year period in
which you lived in the home as your primary place of residence.
The determining factor is that you lived in the home for 24 months not whether you owned the home for five years.
