If you sold your home recently, or are planning to, there’s good news. You might be able to exclude the entire gain on the sale. This is called the home gain exclusion, and it is one of the most valuable tax breaks available to homeowners.

What Is the Home Gain Exclusion?

When you sell your home for more than you originally paid for it, the difference is called capital gain. Generally, capital gains are taxable. However, the IRS allows many homeowners to exclude (or avoid paying tax on) up to a certain amount of profit from the sale of their main residence.

How Much Can You Exclude?

  • Single taxpayers can exclude gains up to $250,000.
  • Married couples filing jointly can exclude gains up to $500,000.

How Do You Qualify?

To qualify, both must generally be true:

  • You owned and lived in the home as your primary residence for at least two years during the five years before the sale.
  • You have not used this exclusion on another home sale in the last two years.

What If You Lived in Your House Less than 2 Years?

If you do not meet the 2-out-of-5-year ownership and residency rule, you may still qualify for a partial exclusion of the gain. This could apply if you sold the home due to work relocation, health issues, or other unforeseen circumstances, as defined by the IRS.

Final Thoughts

Feel free to contact your KT tax advisor before selling your home to make sure you qualify for the home gain exclusion.

If you meet the requirements, you may be able to walk away from your home sale without owing any federal income tax on the gain. This can make a dramatic difference when planning your next move.