Thanks to Charles Bates for sharing this great description of a very important question: If you sell your home, will you have to pay capital gains tax?
The IRS permits a maximum exclusion on capital gain of $250,000 for individuals and $500,000 for married couples filing a joint return who sell their home, but of course some conditions apply.
For the five-year timeframe prior to the date of the sale of your primary residence, you must meet the Ownership and Use Tests the IRS provides in Publication 523, Selling Your Home. These rules ensure you have owned the home for at least two years, and lived in the home for at least 24 months out of the last five years. Additionally, you may not have excluded a gain on your taxes from the sale of a different home within the last two years. Note that if you sell your property for less than your original purchase price, you cannot claim a capital loss.
A ‘reduced maximum exclusion’ can apply to those who must sell their home due to a change in their place of employment, health issues, or unforeseen circumstances that affect qualified individuals. In all cases, it is best to consult your tax professional or IRS guidelines if you have any questions about the taxes you may be responsible for if you sell your home.