If you meet the qualifications to use the exclusion, any gain over that amount is a capital gain. The exclusions are $250,000 for single, and $500,000 for married filing jointly. See the rules below.
Does Your Home Sale Qualify for Maximum Exclusion
The tax code recognizes the importance of home ownership by providing certain tax breaks when you sell your home. To qualify for these breaks, your home must meet the Eligibility Test , which is explained later.
The type of home involved is less important. A single-family home, condominium, cooperative apartment, mobile home, or houseboat can all count as a home.
How your sale qualifies. Your sale qualifies for exclusion of $250,000 gain ($500,000 if married filing jointly) if all of the following requirements are met.
You owned the home and used it as your main home during at least 2 of the last 5 years before the date of sale.
You didn’t acquire the home through a like-kind exchange (also known as a 1031 exchange), during the past 5 years.
You didn’t claim any exclusion for the sale of a home that occurred during a 2-year period ending on the date of the sale of the home, the gain from which you now want to exclude.
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Eligibility Step 1—Automatic Disqualification
Determine whether any of the automatic disqualifications apply. Your home sale isn’t eligible for the exclusion if ANY of the following are true.
You acquired the property through a like-kind exchange (1031 exchange), during the past 5 years. See Pub. 544, Sales and Other Dispositions of Assets.
You are subject to expatriate tax. For more information about expatriate tax, see chapter 4 of Pub. 519, U.S. Tax Guide for Aliens.
If any of these are true, skip to
Figuring Gain or Loss , later.
Eligibility Step 2—Ownership
Determine whether you meet the ownership requirement. If you owned the home for at least 24 months (2 years) during the last 5 years leading up to the date of sale (date of the closing), you meet the ownership requirement.
If you received Form 1099-S, Proceeds From Real Estate Transactions, the date of sale appears in box 1 of Form 1099-S.
If you didn’t receive Form 1099-S, the date of sale is either the date the title transferred or the date the economic burdens and benefits of ownership shifted to the buyer, whichever date is earlier. In most cases, these dates are the same.
Eligibility Step 3—Residence
Determine whether you meet the residence requirement. If your home was your residence for at least 24 of the months you owned the home during the 5 years leading up to the date of sale, you meet the residence requirement. The 24 months of residence can fall anywhere within the 5-year period. It doesn't have to be a single block of time. All you need is a total of 24 months (730 days) of residence during the 5-year period.
If you were ever away from home, you need to determine whether that counts as time living at home or not. A vacation or other short absence counts as time you lived at home (even if you rented out your home while you were gone).
If you have a disability, and are physically or mentally unable to care for yourself, you only need to show that your home was your residence for at least 12 months out of the 5 years leading up to the date of sale. In addition, any time you spend living in a care facility (such as a nursing home) counts toward your residence requirement, so long as the facility has a license from a state or other political entity to care for people with your condition.
