United States guide
The Section 121 home sale exclusion explained
Section 121 lets you exclude up to $250,000 of gain on the sale of a main home, or $500,000 for a married couple filing jointly, provided you owned the home and lived in it as your main home for at least two of the five years before the sale. Gain above the exclusion is taxed at the long-term rate. There is no limit on how many times the exclusion can be used, as long as it is not used more than once every two years.
| Exclusion, single filer | $250,000 |
| Exclusion, married filing jointly | $500,000 |
| Ownership test | 2 of the last 5 years |
| Use test | 2 of the last 5 years |
| How often | Once every 2 years |
What are the ownership and use tests?
Two separate tests must both be met. The ownership test asks whether you owned the property for at least 24 months of the 60 months ending on the sale date. The use test asks whether you lived in it as your main home for at least 24 months of that same period.
The 24 months do not need to be continuous, and they do not need to be the same 24 months for each test. Short absences such as holidays count as time lived in the home. For a married couple filing jointly, only one spouse needs to meet the ownership test, but both must meet the use test to claim the full exclusion.
What if I do not meet the two year test?
A reduced exclusion may still apply if the sale was caused by a change in place of employment, by health, or by an unforeseeable event as defined by the Internal Revenue Service. The reduced exclusion is the full amount multiplied by the fraction of the two years actually met.
For example, meeting 12 of the required 24 months because of a job relocation gives half the exclusion, which is $125,000 for a single filer.
Does the exclusion cover a rental that later became my home?
Only partly. Periods after 2008 when the property was not your main home are non-qualified use, and the share of the gain matching those periods cannot be excluded. Depreciation claimed while it was rented is also excluded from relief and is recaptured separately, at up to 25%.
What is taxed on the gain above the exclusion?
The excess is a long-term capital gain if the property was held more than a year, taxed at 0%, 15% or 20% depending on where it stacks on your taxable income. The Net Investment Income Tax of 3.8% can apply on top once modified adjusted gross income passes $200,000 single or $250,000 married filing jointly.
Worked example: a main home sold at a large gain
| Sale price | $800,000 |
| Less purchase price | −$400,000 |
| Less selling costs and improvements | −$70,000 |
| Gain | $330,000 |
| Less Section 121 exclusion | −$250,000 |
| Taxable gain | $80,000 |
| Estimated federal tax | $12,000 |
A single filer with $120,000 of other income, who owned and lived in the home for the whole period. State tax is separate.
Try your own figures in the United States capital gains tax on property calculator.
Common questions
How much gain can I exclude when selling my home?
Up to $250,000 if you file as single, or $500,000 if you are married filing jointly, provided you owned and lived in the home for at least two of the five years before the sale.
Can I use the exclusion more than once?
Yes, but not more than once in any two year period. There is no lifetime limit on the number of times it can be claimed.
Do I have to report the sale if the gain is fully excluded?
Generally no, unless you receive a Form 1099-S for the sale or choose not to claim the exclusion. If a 1099-S is issued, the sale must be reported even when no tax is due.
Does the exclusion cover depreciation I claimed?
No. Depreciation claimed after May 1997 is recaptured and taxed at up to 25%, regardless of the exclusion.
This is an estimate for general information only, not tax, legal or financial advice. Tax rules are complex and depend on your circumstances, and figures may not reflect the latest changes. Confirm your position with Internal Revenue Service (IRS) or a qualified tax adviser before acting. The terms of use set out the limits of this estimate and of our liability.
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