The home-sale exclusion
Under the IRS rules (Topic 701, Publication 523), you can usually exclude up to $250,000 of gain, or $500,000 on a joint return, when you sell your main home if:
- you owned it for at least 2 of the 5 years before the sale (ownership test),
- you lived in it as your main home for at least 2 of those 5 years (use test), and
- you haven't excluded gain on another home sale in the two years before.
For married couples, either spouse can meet the ownership test, but both must meet the use test for the full $500,000.
Your gain is price minus basis
Gain is roughly the sale price, minus selling costs, minus your basis: what you paid plus the cost of improvements (an addition, a new roof, windows, a finished basement). Repairs and upkeep don't count. In a home bought decades ago, improvements can make a real difference, so gather the receipts.
If a spouse has passed away
Surviving spouses may still qualify for the $500,000 exclusion if the home is sold within two years of the spouse's death and other conditions are met, and part of the home's basis may be stepped up. These rules have details that matter: ask your CPA before you list.
Inherited homes
Heirs generally receive the home at its value on the date of death (a "stepped-up" basis), so selling soon after inheriting often produces little taxable gain. See selling a parent's home.
A note on advice
Every situation is different: confirm the details with your CPA or tax preparer before you sell. We'll give your CPA the sale numbers they need.