Capital Gaines Tax Exemption

[meh1215]

We sold our primary residence after living in it for 20 months at the end of 2024. Can we still be exempt from capital gains tax? Something to consider is we are under contract to purchase a new home, although it is at the beginning of 2025 (a different tax year). Does that matter? Also, would we need to use all of the proceeds from the sale or can we use some of it?

[Opus 17 · Accepted solution]

How you use the proceeds or when you buy a new home is irrelevant, each sale is treated as its own separate event.  (Rules related to postponing gain by buying a replacement home were removed from the tax law in 1997).

All the rules on the current exclusion are covered in IRS publication 523.  In particular, you may qualify for a partial exclusion if you sell before 2 years due to certain financial hardships, as listed in the publication.  If there was no hardship and it was just your choice to move someplace different, then you can't use the capital gains exclusion.

https://www.irs.gov/forms-pubs/about-publication-523