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Selling a longtime home can involve both federal and state tax rules. Even when you qualify for the federal IRS Section 121 home-sale exclusion, state income-tax filing rules, closing paperwork, withholding requirements, and transfer taxes may still affect your transaction. This guide explains several common state-level issues for homeowners planning a sale. A federal home-sale exclusion does not eliminate every state filing or closing requirement. 1. Start With the Federal Section 121 Rule Eligible homeowners may exclude up to $250,000 of gain from a main-home sale, or up to $500,000 for many married couples filing jointly. In general, you must meet the ownership test, use test, and two-year look-back rule described in IRS Publication 523. State tax analysis begins only after you calculate the federal result. A state may follow the federal exclusion, require closing documents before allowing an exemption, or tax any remaining gain under its own income-tax rules. 2. Four Com...

For many older homeowners, selling a long-time residence can create a large gain on paper. Federal tax law may allow you to exclude part or all of that gain under IRS Section 121 . This is not a senior-only benefit: the same core rules apply regardless of age. The key question is whether the property was your main home and whether you meet the ownership, residence, and timing tests. A home sale exclusion depends on your facts, records, and the timing of the sale. 1. The Section 121 Home Sale Exclusion If you have a gain from selling your main home, you may be able to exclude up to $250,000 of gain from federal income tax. A married couple filing a joint return may be able to exclude up to $500,000 . The exclusion applies to gain , not the full sale price. Your gain is generally calculated as: Selling price − selling expenses − adjusted basis = gain or loss Your adjusted basis may include the original purchase price, certain closing costs, and qualifying capital improveme...