The capital gains exclusion on home sale allows homeowners to exclude a portion of the profit from the sale of their primary residence from federal taxation. This exclusion is available to taxpayers who meet specific criteria and can significantly reduce or eliminate the tax liability associated with selling a home.
The exclusion amounts are:
- Up to $250,000 for single filers.
- Up to $500,000 for married couples filing jointly.
To qualify for the exclusion, homeowners must meet the following conditions:
- The home must have been the taxpayer’s primary residence for at least two out of the last five years before the sale.
- The taxpayer must not have claimed the exclusion for another home sale in the previous two years.
The capital gains exclusion can only be applied to the net gain (profit) from the sale, which is the difference between the selling price and the original purchase price (adjusted for improvements). If the gain exceeds the exclusion limit, the excess is subject to capital gains tax.
This exclusion provides homeowners with significant tax relief when selling their primary residence, making it a valuable tool for reducing or eliminating tax liability on home sales.