Exclusion Limit

If you’ve owned and lived in your home for two of the five years prior to selling it, you can generally exclude up to $250,000 of the gain from your income ($500,000 on a joint return, in most cases).

Not Eligible for Exclusion

If you sold another principal residence within the past two years and excluded the allowable gain from your income, then you are not eligible for exclusion.

Reporting Gain to IRS

If you can exclude ALL of the gain from the sale of your primary residence, you don’t need to report the sale on your tax return.

Gain Exceeds the Exclusion Limit

If you had a gain on your principal residence that exceeds the allowable deduction, it is taxable. Note: if you had some major remodeling or improvement expenses, these costs might help you offset some of the gains from the sale of your home.

Loss from Sale

If you had a loss from the sale of your home, unfortunately you can’t deduct it from your income.

Suspension of the Five-Year Test Period

If you or your spouse are on qualified official extended duty in the Uniformed Services, the Foreign Service or the intelligence community, you may elect to suspend the five-year test period for up to 10 years. An individual is on qualified official extended duty if for more than 90 days or for an indefinite period, the individual is:

  • At a duty station that’s at least 50 miles from his or her main home, or
  • Residing under government orders in government housing.

Refer to Publication 523 for more information about this special rule to suspend the 5-year test.

Installment Sales

If you sold your home under a contract that provides for all or part of the selling price to be paid in a later year, you made an installment sale. If you have an installment sale, report the sale under the installment method unless you elect out. Even if you use the installment method to defer some of the gain, the exclusion of gain under Section 121 remains available. Refer to Publication 537, Installment SalesForm 6252, Installment Sale Income (PDF), and Topic No. 705, Installment Sales, for more information on installment sales.

Special Rules

Special rules may apply when you sell a home for which you’ve received the first-time home buyer credit.

The above facts apply only to the principal residence and do not apply for rental or income producing properties.

Please note this is not tax advice, if you have questions regarding these tax exclusion limits and special rules, please see IRS publication 523, “Selling Your Home” for details or speak to your tax accountant and tax attorney.

You can read more at IRS website:
https://www.irs.gov/taxtopics/tc701
https://www.irs.gov/publications/p523

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