Selling your home: the exclusion, the two-of-five-years tests, and the tax on the rest
Property
Up to $250,000 of the gain on a main home is excluded for a single seller, $500,000 for a couple filing jointly; on a $400,000 gain a single seller with $80,000 of other income pays $22,500 of federal tax on the rest.
- $250,000excluded, single
- $500,000excluded, joint
- $22,500federal tax on the rest
Understanding the Home Sale Exclusion
The home sale exclusion reduces taxable gain when you sell your primary residence. Single filers exclude a specific amount, while joint filers exclude a larger sum. These limits appear in the key figures above. The table below details these thresholds by filing status. Only the gain exceeding these limits becomes subject to standard capital gains tax rates. This structure ensures that typical home appreciation often results in little or no federal tax liability for many homeowners. Use the calculator to see how your specific situation fits these rules.
| Filing status | Gain excluded ($) |
|---|---|
| Single | 250,000 |
| Married filing jointly | 500,000 |
Eligibility Requirements
To qualify, you must meet two specific tests within the five years preceding the sale. First, you must have owned the home for at least two years. Second, you must have lived in it as your main home for at least two years. These periods do not need to be consecutive. For joint returns, both spouses must satisfy the use test. Meeting these conditions allows the exclusion to apply. Failing either test may disqualify the entire gain from exclusion. More details on eligibility are available in the guide to selling a home.
Calculating the Remaining Tax
Any gain above the excluded amount is treated as capital gain. The tax on this remainder depends on your total income and filing status. The key figures show an example calculation for a single seller with other income. This tax applies only to the portion exceeding the exclusion limit. The excluded portion itself is not considered investment income for the net investment income tax. This distinction lowers the overall tax burden on the sale.
Impact on Other Taxes
The excluded portion of the gain does not count toward the net investment income tax threshold. This means the exclusion can indirectly lower taxes on other investment income. The remaining taxable gain is subject to standard capital gains rates. Your total income determines which rate applies. Use the calculator to estimate your specific liability based on your income level and filing status. This helps clarify how the exclusion interacts with other tax obligations.
Questions
Do both spouses need to meet the residency test?
Yes, both spouses must meet the use test for a joint return to claim the full joint exclusion. Each spouse must have lived in the home as their main residence for at least two years during the five-year period.
Does the excluded amount count as investment income?
No, the excluded portion of the gain is not considered investment income for the net investment income tax. Only the remaining taxable gain is subject to standard capital gains rates and related taxes.
How is the remaining gain taxed?
The remaining gain is taxed at standard capital gains rates. Your total income determines the applicable rate. The calculator helps estimate this tax based on your specific financial situation.
Every figure on this page is computed by code from the 2026 federal brackets and capital gains thresholds (IRS Rev. Proc. 2025-32) and the 2026 state brackets. See the methodology.