Home Sale Tax Exclusion 2026
For most people, the profit from selling a home is completely tax-free. The IRS lets you exclude up to $250,000 of gain (single) or $500,000 (married) if you lived there long enough. Here is the 2026 rulebook.
Single exclusion
$250,000
Of home-sale gain
Married exclusion
$500,000
Filing jointly
Ownership test
2 of 5 years
Owned and lived in it
Above the cap
0/15/20%
Long-term capital gains
The $250,000 / $500,000 Exclusion
Under IRS Section 121, when you sell your primary residence at a gain, you can exclude $250,000 of that gain if single, or $500,000 if married filing jointly. This is one of the most generous breaks in the tax code — a couple who bought a home for $400,000 and sells it for $850,000 keeps the entire $450,000 profit tax-free.
The exclusion is per-sale, not once-in-a-lifetime: you can use it repeatedly, as long as you meet the ownership-and-use test each time (generally no more than once every two years).
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The 2-of-5-Year Ownership and Use Test
To qualify, you must have owned the home and used it as your main residence for at least 2 years during the 5-year period ending on the sale date. The two years do not need to be consecutive. If you meet the test, the full exclusion applies. If you fall short, you may still qualify for a partial exclusion under specific circumstances.
Partial Exclusions and Exceptions
If you do not meet the full 2-year test, you may still claim a prorated partial exclusion if the sale was due to:
- A change in employment — a new job at least 50 miles farther away.
- A health issue — moving for medical care for you or a family member.
- Unforeseen circumstances — divorce, death, multiple births, or other events the IRS recognizes.
In these cases the $250,000/$500,000 amount is prorated by how much of the two-year period you actually satisfied.
When Your Gain Exceeds the Limit
Gains above the exclusion are taxed as long-term capital gains if you owned the home more than one year — at 0%, 15%, or 20% depending on your income (plus the 3.8% NIIT for high earners). Owned less than a year, the gain is short-term and taxed as ordinary income. Your cost basis (purchase price plus improvements) reduces the taxable gain, so keep records of renovations.
Frequently Asked Questions
Does the exclusion apply to a second home?
No. It applies only to your primary residence — the home you lived in as your main home. Vacation homes and investment properties do not qualify for the Section 121 exclusion.
Can I exclude gain if I rented out my home first?
It depends on timing and use. If you used it as your main home for 2 of the last 5 years before selling, you may qualify — but depreciation taken during the rental period is recaptured and taxed.
What if my home sold at a loss?
A loss on a personal residence is not deductible. Only investment or rental properties allow a loss deduction.
How often can I use the exclusion?
Generally once every two years. If you sell a second qualifying home within two years of the first, a full exclusion may not be available — though a partial one might under an exception.
Sources
- IRS Publication 523 — Selling Your Home (Section 121 exclusion).
- IRS — 2-of-5-year ownership and use test and partial-exclusion rules.
- IRS Revenue Procedure 2025-32 — capital gains rates.
This is informational, not tax advice. Partial exclusions depend on specific facts — verify with IRS Publication 523.