The ownership and use tests
You owned the home for at least 2 of the 5 years before the sale AND used it as your primary residence for at least 2 of those 5 years. Doesn't have to be the same 2 years.
Partial exclusion for unforeseen events
Job relocation over 50 miles, health-related moves, or specified unforeseen circumstances (death, divorce, multiple births) can qualify you for a proportional exclusion even if you didn't meet the full 2-year tests.
Common questions
- Does depreciation recapture apply?
- If you ever rented the home or claimed business use, yes. Depreciation taken (or allowable) is recaptured at up to 25% and doesn't benefit from the Section 121 exclusion.
Related
Personal Income Tax Preparation
Federal and state 1040 preparation with year-round planning. We handle W-2, 1099, K-1, rental, and crypto income for individuals in Florida and all 50 states.
Tax Planning
Year-round tax planning for individuals and business owners. We project the year's income quarterly and model decisions before they become tax liabilities.
Capital Gains Tax Rates
Long-term gains are taxed at 0%, 15%, or 20% by income; short-term gains use your ordinary rate. 2025 brackets, the 28% collectibles cap, and the 3.8% NIIT.
Converting a Home to a Rental
Renting out a former home starts 27.5-year depreciation and clocks the Section 121 exclusion. The 3-in-5 window, basis rules, and depreciation recapture.