The home sale exclusion in one paragraph
You can leave up to $250,000 of profit from the sale of your main home off your tax return, or $500,000 if you are married and file jointly. IRS Publication 523 and Topic 701 set out three conditions: you owned the home for at least 24 months in the 5 years before the sale, you lived in it as your main home for at least 24 months in that same window, and you didn’t exclude gain on another home sold in the 2 years before this one. The 24 months don’t have to be continuous; Publication 523 counts “a total of 24 months (730 days).”
If you meet all three, and your gain is under the limit, you owe no federal tax on the sale.
How to figure your gain
Gain is not the sale price minus what you paid. It is your amount realized minus your adjusted basis, and Publication 523’s Worksheet 2 walks through it.
Amount realized is the “sale price minus selling expenses.” Selling expenses include commissions, advertising, legal fees, and seller-paid transfer taxes such as Ohio’s conveyance fee.
Adjusted basis starts with what you paid, plus certain purchase closing costs, plus capital improvements, minus things like depreciation you claimed and insurance payments for casualty losses.
Example for a couple in Stow who bought in 2004 and are selling in 2026:
| Line | Amount |
|---|---|
| Sale price | $340,000 |
| Selling expenses (commission, conveyance fee, title) | minus $21,000 |
| Amount realized | $319,000 |
| Purchase price in 2004 | $165,000 |
| Improvements: roof, kitchen, addition | plus $55,000 |
| Adjusted basis | $220,000 |
| Gain | $99,000 |
| Exclusion (married, both qualify) | up to $500,000 |
| Taxable gain | $0 |
What counts as an improvement
Improvements raise your basis; repairs don’t. Publication 523 gives examples of improvements such as additions, new roofs and HVAC systems, and says routine repairs and maintenance generally don’t count.
Useful rules of thumb:
- Improvement: something that adds value, extends the life of the home, or adapts it to a new use. New windows, a finished basement, a new furnace, a deck.
- Repair: something that keeps the home in ordinary working order. Patching drywall, fixing a leak, repainting a room.
- Keep records of improvements for as long as you own the home and for several years after the sale. Old receipts are often the difference between a taxable and a tax-free sale for long-time owners.
When you only get part of the exclusion
If you don’t meet the 2-year tests, you may still get a reduced exclusion. Publication 523 allows a partial exclusion when the main reason for selling was:
- work-related, such as a job move far enough away
- health-related, such as moving to get or provide care
- an unforeseeable event, which the IRS defines with specific examples, including death, divorce, and multiple births from one pregnancy
The partial exclusion is generally a fraction of the full $250,000 or $500,000, based on how much of the 2 years you met. Members of the uniformed services, the Foreign Service and the intelligence community on qualified extended duty can suspend the 5-year window for up to 10 years.
When the exclusion doesn’t cover the gain
Some sales are taxable even for long-time owners.
- Gain above the limit. A single owner with $300,000 of gain excludes $250,000 and reports $50,000.
- Rental or business use. Publication 523 says depreciation claimed after May 6, 1997 can’t be excluded and must be recaptured. Topic 409 says unrecaptured section 1250 gain is taxed at a maximum 25% rate. A separate rental unit, such as the other side of a duplex, generally isn’t covered at all.
- Nonqualified use. Periods after 2008 when the home wasn’t anyone’s main home can reduce the exclusion.
- Second homes and inherited houses you never lived in don’t qualify. Inherited houses have their own basis rules; see capital gains tax on an inherited house. Rental owners should read about a 1031 exchange.
2025 capital gains rates
Taxable gain on a home owned more than one year is long-term. IRS Topic 409 lists the 2025 brackets for long-term gains:
| Rate | Single filers, taxable income | Married filing jointly, taxable income |
|---|---|---|
| 0% | up to $48,350 | up to $96,700 |
| 15% | $48,351 to $533,400 | $96,701 to $600,050 |
| 20% | over $533,400 | over $600,050 |
A home owned one year or less produces short-term gain, taxed as ordinary income. High-income sellers may also owe the net investment income tax on taxable gain. Ohio taxes the gain too if it is in your federal income; see Ohio income tax on a house sale.
Reporting the sale
You must report the sale if you have taxable gain, if you received Form 1099-S, or if you choose to report it. If none of those apply, Publication 523 says you don’t need to report it. When you do report, it goes on Form 8949 and Schedule D, with any business-use portion on Form 4797.
The title company may ask you to sign a certification that your gain is fully excludable, which can mean no 1099-S is issued. Our guide to Form 1099-S when selling a house explains how that works.
Tax rules have exceptions that depend on your facts, so confirm your numbers with a tax professional before you close. If you are deciding when to sell, the 2-year tests are worth checking first.
