Why don't I have to pay capital gains on the sale of my house?

[Jordan3]

I sold my house after living in it only 18 months (less than the 2 year threshold), so I expected to have to pay capital gains tax on the profit. However, after I input all my info into TurboTax, I got this message: "You don't have to pay any income tax on this sale of your home because your gain of $10,702 was less than the maximum allowed of $375,000." Can someone explain why I don't have to pay capital gains even though I lived in the house for less than 2 years?

[Opus 17]

Because you indicated that you sold the home early due to a qualifying "unforeseen circumstance" (like a change in job, unemployment, change in health that required you to move, or a few other things).  You are then eligible for a partial exclusion -- in your case, you lived there 75% of 2 years so you qualify for 75% of the normal exclusion of $500,000 for married filing jointly.

(I'm surprised it's exactly $375,000 since the exclusion amount is figured to the day.  You must have owned the home for exactly 548 days -- 75% of 731 days.)

[Critter]

VERY IMPORTANT... if you got a 1099-S from the closing company you MUST report the sale even if you have no gain to report... make sure you check the 1099-S box and look sharp since it is not obvious ... the sale must show on the form 8949 & Sch D.