The maximum amount of capital gain that can be excluded is $250,000 for single filers, or $500,000 for a married couple filing jointly.
To qualify for the full exclusion amount, according to IRS Publication 523, the following criteria must be met:
- The home being sold is your primary residence.
- You’ve owned the home for at least two years in the five-year period before selling it.
- You’ve lived in the home for at least two years within the five-year period before selling it. The years you’ve lived in it don’t need to be consecutive. Certain exceptions to this rule are made for those who are disabled or those in the military, Foreign Service, intelligence community, or Peace Corps.
- You didn’t acquire the home through a like-kind exchange (also known as a section 1031 exchange) within the last five years. This is basically when you swap one investment property for another.
- You haven’t claimed the exclusion on another home in the last two years.
- You aren’t subject to expatriate tax (a government fee paid by those who renounce their citizenship or take up residency in another country).
If you don’t quite check all of these boxes, you may still qualify for a partial exclusion of gain. This can happen if the main reason for your home sale was a change in workplace location, a health issue, or an unforeseeable event.