Can I Exclude the Gain From My Income When I Sell My House?

Updated January 30, 2025

Reviewed by

Fact checked by

Realtor hangs "For Sale" sign — Grace Cary / Getty Images

At tax time, you must include any gains that result from the sale of your home in your taxable income. However, if the gain is from the sale of your primary residence, you may exclude up to $250,000 from your income if you're a single filer or up to $500,000 if you're married and filing jointly, provided that you meet certain requirements. These amounts are the maximum exclusion.

Keep reading to learn whether the exclusion applies to you and how to claim it.

Key Takeaways

You may be subject to taxation on any gains realized from the sale of a home.
Single taxpayers may qualify for an exclusion of up to $250,000 in gains from the sale of their 澳洲幸运5开奖号码历史查询:principal residence. The exclusion goes up to $500,000 for 澳洲🌌幸运5开奖号码历史查询:married cou𒈔ples who are filing jointly.
To qualify for the exclusion, you must have owned the property for two out of the prior five years and it must have been used as your primary residence.
The gains are reported on Form 8949 and Schedule D of your tax return.
To be eligible, you must not have received a similar exemption from a property sale in the last two years.

Eligibility for Gains Exclusion

As noted above, the 澳洲幸运5开奖号码历史查询:Internal Revenue Service (IRS) allows homeowners to exclude from 澳洲幸运5开奖号码历史查询:taxable income a certain amount of gains that result from the sale of tಞheir primary ꦺhome. This is known as the Section 121 rule.

To be eligible to exclude up to $250,000 as a single filer (or $500,000 if you're married and filing jointly) in gains from the sale of your property, you must meet the following requirements:

You must pass the ownership and use tests. This means that you must have owned the home for at least two years within the five-year period ending on the date when you sold your home. You also must have lived in it as your primary residence for at least two of those five years. The two years do not have to be consecutive.
You did not exclude from your income the gain from a sale of another home during the two-year period ending on the date of the sale of the home for which the exclusion is being claimed.

If you share ownership in the home but you and the other owner file 澳洲幸运5开奖号码历史查询:separate returns, you may each exclude up to $250,000 if you both meet the requirements listed above. Your portion of the gain is the percentage ownership you have in the home multiplied by the total gain from the sale.

Fast Fact

For detailed information about the eligibility requirements for this exclusion, refer to IRS Publication 523, which also includes information about the reduced maximum exღclusion for individual♊s who are not eligible to claim the maximum exclusion. You can access the full document on the .

How to Claim the Exclusion

Once you sell your home, you may receive a Form 1099-S: Proceeds from Real Estate Transactions from the lender, real estate agent, broker, or realtor. This form includes:

The issuer's name and details, including their address, and 澳洲幸运5开奖号码历史查询:taxpayer identification numb🧸er (TIN)
Closing date
Property address
Gross proceeds of the sale

According to the IRS, the full amount of the sale must be reported to the agency "even if the gain from the sale is excludable."

Make Your Claim

Taxpayers should use 澳洲幸运5开奖号码历史查询:Schedule D: Caꦉpital Gains and Losses as well as Form 8949: Sales and Other Dis🐽posit𒅌ions of Capital Assets to report the sale and claim the exclusion.

This includes those who can't exclude the entire 澳洲幸运5开奖号码历史查询:capital gain from their income. Keep in mind that both of these forms go hand-in-hand and must be completed together and accompany 澳洲幸运5开奖号码历史查询:Form 1040.

Steve Stanganelli, CFP®, CRPC®, AEP®, CCFS
Clear View Wealth Advisors, LLC, Amesbury, MA

Whether or not you are exempt from tax will depend on your filing status, the amount of t🐽he gain, and yo📖ur occupancy status for the property sold.

Your gain is figured by determining your basis. Your basis consists of what you or꧒iginally paid for the property plus certain closing costs at the time. Then you add in major home improvements, such as a new kitchen, etc. Also, add in the real estate transaction fees you paid.

To figure out the gain, take your sale price, and subtract the basis. If the difference is $250,000 or less (for a single filer) or $500,000 or less (for those filing jointly), you will not pay tax on any of your gain🍨s🔜.

You will need to file a form wit⛎h your taxes to document this. To best determine whether o🎃r not your sale is exempt, you may want to speak with a qualified tax planner.

How Do I Claim the Primary Residence Exclusion?

Your agent, broker, realtor, or lender will send you a Form 1099-S after the sale of your home goes through. This ꦇform will have the information you need to report the sale. The IRS requires that you report the amount, regardless of any excludable amount.

If you meet the eligibility requirements, use the i♍nformation from Form 1099-S to report the sale on Form 8949 to calculate your gains. You can then fill out Schedule D. These forms must accompany Form 1040 when you file your annual tax return.

What Is the 2-out-of-5 Rule for Capital Gains?

The 2-out-of-5 (or 2-5 for short) rule is commonly applied to the sale of a principal or primary residence. Also referred to as the ownership and use test, it states that a taxpayer must have owned the home for two of the last five years before the sale (they don't have to be consecutive) and they must have used it as their principal residence for two of those years.

How Many Times Can I Exclude the Gain on the Sale of a Home?

You may only exclud💧e the gain on the sale of a home using the Section 121 exclusion𒁏 (the primary residence exclusion) once within two years. So if you used the exclusion when you filed your 2024 taxes, for example, you cannot use it again on your 2025 taxes.

How Do I Avoid Paying Capital Gains When I Sell My Home?

While you may not be able to avoid paying taxes outright, the IRS gives taxpayers a tax break on the capital gains that result from the sale of their principal residence. The Section 121 rule allows single filers to exclude up to $250,000 and married couples who file jointly to exclude up to $500,000 in gains as long as they meet the 2-out-of-5 rule, which states that you must have owned and lived in the residence in two out of the five past years ( those years don't need to be consecutive).

The Bottom Line

You have to report any profits that result from the sale of your home. But the IRS allows you to exclude a certain portion of those gains—up to $250,000 if you're a single filer or up to $500,000 for married couples who file jointly.

To qualify, the home must have been your primary residence and you must have owned it for two of the last five years leading up to the sale. This two-year period doesn't have to be consecutive.

Keep in mind that you can't use the exclusion more than once in a two-year period. Be sure to talk to a tax professional if you need more information about your tax liability.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.