Generally, you are required to include the gain from the sale of your home in your taxable income. However, if the gain is from your primary home, you may exclude up to $250,000 ($500,000 for married couples filing jointly) gain from income, if you meet certain requirements. This is referred to as maximum exclusion.

If the gain exceeds $250,000, the excess amount must be reported on Schedule D of your tax return.

In order to be eligible to exclude up to $250,000, you must meet the following requirements:

  • You must meet the "ownership and use" test. Under this requirement, you must have owned the home for at least two years, and have lived in it as your primary residence for at least two years. This two-year period must be within the five-year period ending on the date you sold your home.
  • You did not exclude from your income the gain of a sale from 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 shared ownership in the home, but you and the other owner file separate returns, you may each exclude up to $250,000 from your income, if you both meet the requirements listed above.

If you are married, you may be subject to additional requirements.

For detailed information about the eligibility requirements for this exclusion, refer to IRS Publication 523, which also includes information about the reduced maximum exclusion for individuals who are not eligible to claim the maximum exclusion.

To read more frequently asked tax questions, seeTax Tips For The Individual Investor, Common Tax Questions Answered and How can I tell if I'm eligible for an EITC?

Question answered by Denise Appleby, CISP, CRC, CRPS, CRSP, APA

  1. Why is the Cayman Islands considered a tax haven?

    The Cayman Islands is one of the most well-known tax havens in the world. Unlike most countries, the Cayman Islands does ... Read Full Answer >>
  2. Why is Luxembourg considered a tax haven?

    Luxembourg has been the tax haven of choice for many corporations and mega-rich individuals around the world since the 197 ... Read Full Answer >>
  3. Why is Panama considered a tax haven?

    The Republic of Panama is considered one of the most well-established pure tax havens in the Caribbean due to extensive legislation ... Read Full Answer >>
  4. How do I get out of my annuity and transfer to a new one?

    If you decide your current annuity is not for you, there is nothing stopping you from transferring your investment to a new ... Read Full Answer >>
  5. Are Cafeteria plans exempt from Social Security?

    Typically, qualified benefits offered through cafeteria plans are exempt from Social Security taxes. However, certain types ... Read Full Answer >>
  6. Why is Andorra considered a tax haven?

    Andorra is one of many locations around the globe considered a tax haven because of its relatively lenient tax laws. However, ... Read Full Answer >>
Related Articles
  1. Economics

    Explaining Corporate Tax

    A corporate tax is a tax levied on the profits a corporation generates.
  2. Taxes

    The 5 Countries Without Income Taxes

    Discover information on some of the best countries to consider relocating to that offer the financial benefit of charging no income tax.
  3. Professionals

    Tax Efficient Strategies for Mutual Funds

    Before you sell mutual fund shares, consider these tax strategies first.
  4. Home & Auto

    Read This Before Buying a Vacation Home with Friends

    Going in with friends to buy a vacation home will save you on the mortgage and expenses. But if there's conflict, it could end up costing your more.
  5. Investing Basics

    Pros & Cons of Investing in a Condo with Friends

    Buying a beach house or big-city pied-à-terre with friends can save money and make sense, but only if you set it up right. Here's how to avoid trouble. thoroughly research and discuss potential ...
  6. Home & Auto

    The Most Expensive Neighborhoods in London

    Understand what makes London such a desirable place to live and why it is so expensive. Learn about the top five most expensive neighborhoods in London.
  7. Investing

    Costs New Investors in Real Estate Do Not Consider

    As lucrative as real estate investment can be, there are a multitude of costs that new real estate investors must consider.
  8. Retirement

    How Much Can You Contribute to Your 401(k)?

    Given the fairly high compensation limits on these retirement plans, most workers can pitch in more than they currently do.
  9. Taxes

    Tax Haven Vs. Tax Shelters: Is There a Difference?

    Learn about the difference between tax havens and tax shelters, and how both are used to reduce tax liability or avoid paying taxes altogether.
  10. Savings

    The Top Seven 529 Plans for 2015

    With so many choices and so many features (tax advantages, fees, annualized returns) to consider, it's hard to know which 529 plan to choose. Here's help.
  1. Section 1231 Property

    A tax term relating to depreciable business property that has ...
  2. Wealth Management

    A high-level professional service that combines financial/investment ...
  3. Fair Housing Act

    This law (Title VIII of the Civil Rights Act of 1968) forbids ...
  4. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  5. Guideline Premium And Corridor Test (GPT)

    A test used to determine whether an insurance product can be ...
  6. Cash Value Accumulation Test (CVAT)

    A test method used to determine whether a financial product can ...

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!