Sell Your Home, Tax-Free
IRC Section 121 of the U.S. tax code allows you to exclude up to $500,000 of gain from the sale of your home. This interactive guide helps you understand the complex rules and find the best tax strategy for your situation.
3-Step Eligibility Checker
Answer a few simple questions to see if you qualify for the exclusion.
1. Ownership Test
In the 5-year period ending on the date of the sale, did you own the home for at least 2 years (730 days)?
2. Use Test
In the 5-year period ending on the date of the sale, did you live in the home as your main home for at least 2 years (730 days)?
3. Look-back Test
In the 2-year period ending on the date of the sale, did you sell another home for which you claimed this exclusion?
Exclusion Calculator
Enter your financial details to estimate your capital gain and tax-free amount.
Solutions for Special Scenarios
Learn how the tax rules apply to complex situations like rentals, divorce, and trusts.
If you used the property for rental or business purposes, the tax calculation gets more complex. The key takeaway: **living in the home first** is much better than **renting it out first**.
❌ Rental First (Unfavorable)
If you rent out the property before living in it, the rental period is considered "nonqualified use." A portion of your gain will not be eligible for the exclusion. Plus, depreciation from the rental period is taxed. (Double penalty)
✅ Residence First (Favorable)
If you live in the home for at least 2 years to meet the tests and then rent it out, that rental period is not considered nonqualified use. The entire gain (except for depreciation recapture) is eligible for the exclusion.
Note: Any depreciation you claimed for a home office or rental use cannot be excluded. This "recaptured" amount is taxed at a maximum rate of 25%, regardless of the scenario.
In Case of Divorce
- Tacking of Ownership/Use: If you receive the home in a divorce settlement, you can count your ex-spouse's period of ownership and use as your own.
- Benefit for Non-Resident Spouse: If one spouse continues to live in the home per the settlement, the spouse who moved out can still count the resident ex-spouse's use to claim their own $250,000 exclusion later.
In Case of Spouse's Death
- Keeping the $500,000 Exclusion: A surviving spouse can claim the full $500,000 exclusion if they sell the home within 2 years of the spouse's death (and the couple met the joint requirements right before death).
Putting a home in a trust is useful for estate planning but can affect the tax exclusion. The type of trust is key.
- Revocable Trust: Generally considered a "grantor trust." For tax purposes, the IRS sees the grantor as the owner. If the grantor meets the ownership and use tests, the trust can claim the exclusion.
- Irrevocable Trust: If structured as a "non-grantor trust," the trust itself is the taxpayer. Since a trust cannot "live" in a home, it fails the use test, and the exclusion is generally lost.
Expert Advice: Before transferring your home to a trust, consult with an estate planning and tax professional to ensure you preserve the exclusion.
State-by-State Tax Comparison
Even if your gain is exempt from federal tax, different state tax rules may apply. Compare two major states below.