The tax code allows individuals to exclude up to $250,000 in profit from the sale of their primary residence; $500,000 for married couples filing jointly. This means that homeowners do not have to pay tax on up to $250,000/$500,000 of the profit from the sale of their home, thus avoiding the capital gains tax.
To use the home sale exclusion, you have to meet certain ownership, use and timing qualifications. You must have owned the home for at least 2 of the last 5 years before the sale. You have to have lived in it as a primary residence for at least 2 out of the last 5 years, and you can’t use this exclusion if you’ve already taken it within 2 years.
Generally, if you sell your home due to circumstances involving divorce, change in employment, change in health or other unforeseen circumstances but don’t meet the ownership, use and timing qualifications, you may qualify for a reduced exclusion.
“The best people possess a feeling for beauty, the courage to take risks, the discipline to tell the truth, the capacity for sacrifice. Ironically, their virtues make them vulnerable; they are often wounded, sometimes destroyed.” Ernest Hemingway