Although gains realized through the sale of a home can be considered income, you may not have to pay federal income taxes on some or all your home sale gains if you meet certain qualifications.
Your home sale may qualify to exclude the first $250,000 of your gain ($500,000 for married filing jointly) if you meet all these requirements:
- You owned the house and used it as your primary residence during at least two of the five years immediately preceding the sale.
- You bought the home and didn’t acquire it through a like-kind exchange (also known as a 1031 exchange) in the past five years
- You haven’t already claimed the exclusion for a home sale occurring in the two years prior to the date of your current home sale.
For example, if you meet these qualifications and you make a $200,000 gain off the sale of your home, you would not be required to pay taxes on that amount. However, if you realize a $300,000 gain off the sale of your home, $50,000 of that gain could be subject to federal income taxes.
If you don't meet the eligibility test, you may still qualify for a partial exclusion of gain if you moved because of work, health, or an unforeseeable event.