Section 121 exclusion
A federal tax rule letting most owners exclude up to $250,000 of capital gains ($500,000 for married couples) on the sale of a primary residence. You have to have lived there 2 of the last 5 years.
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See how it worksWhere this comes up: closing
Part 1 of 4
Why a seller cares
It is the federal rule that lets most sellers keep the gain on their home tax-free, up to $250,000 or $500,000 for a couple, if they owned and lived in it two of the last five years. The two-year test is the one most sellers ask a tax professional about.
Part 2 of 4
A simple example
A married couple bought for $220,000, lived in the home seven years, and sell for $410,000. The $190,000 gain is under the $500,000 limit.
| The situation | How the exclusion commonly applies |
|---|---|
| Lived in it two of the last five years | Up to $250,000 excluded, $500,000 for a couple filing jointly |
| Lived in it eighteen months, moved for a job | Often a partial exclusion, prorated |
| A rental for the last four years | No exclusion; the two-year test is not met |
Two years of living there, out of the last five, is what most of the rule turns on.
Part 3 of 4
What people get wrong
That it is once in a lifetime. It can be used again after two years, which is a change from the old rule people still repeat.
Part 4 of 4 · where to read next
Where it appears in the sale
What a definition is, and what it isn't
Keighbor is a software company, not a law firm, brokerage, or tax adviser. This is general information, not legal, tax, financial, or real estate advice about your sale. Your situation may differ. Before acting on a contract, disclosure, title, tax, or pricing question, ask an appropriately licensed professional in your state.
Written and researched by Keighbor Research · read against IRS Publication 523: selling your home · how we research and check what we publish
In your Room, this word explains itself where it appears.
Your Room defines section 121 exclusion in the step you meet it in, beside the document or the date it belongs to. Free to set up, with an agent or on your own.
Organize my saleFree to set up. Pay once when you list: $89 or $189. 7-day refund.