Do You Pay Taxes When You Sell Your Home? The $250,000 Exclusion Explained
Most people who sell their main home owe no federal tax on the profit. The exclusion is generous, but it has rules. Here's who qualifies, how to figure your gain, and when part of it can be taxed.
By the Enrolled Agents and CPAs at A&W Tax Services · Updated
The exclusion
If you qualify, you can exclude up to $250,000 of gain from the sale of your main home, or up to $500,000 if you're married filing jointly. Gain above that is taxed as a capital gain, at long-term rates if you owned the home more than a year.
Who qualifies
- Ownership: you owned the home for at least two of the five years before the sale
- Use: you lived in it as your main home for at least two of those five years. The two years don't have to be continuous
- Frequency: you haven't used the exclusion on another home sale in the past two years
- For the $500,000 exclusion, either spouse can meet the ownership test, but both must meet the use test
Partial exclusions
If you sell before meeting the two-year tests because of a job change, a health reason or certain unforeseen events, you may still qualify for a reduced exclusion based on how much of the two years you met.
Figuring your gain
- Start with the sale price, minus selling costs such as agent commissions and title fees
- Subtract your basis: what you paid, plus purchase closing costs and the cost of improvements
- Keep receipts for improvements like additions, a new roof or remodeling. They can reduce your gain substantially
- Ordinary repairs and maintenance don't add to basis
When some of the gain is taxable
Depreciation you claimed after May 6, 1997 for a home office or for renting out the home can't be excluded and is taxed when you sell. Gain tied to periods when the home wasn't your main home, such as years it was a rental before you moved in, may also be taxable. And a loss on the sale of your personal home isn't deductible.
If you received Form 1099-S from the title company, or if any part of the gain is taxable, report the sale on your return. Otherwise, a fully excluded sale generally doesn't need to be reported.