US Guide Hub: US Retirement Guide

IRS Section 121 can allow eligible homeowners to exclude up to $250,000 of gain from the sale of a main home, or up to $500,000 for many married couples filing jointly. This is not a senior-only tax rule, but several special rules can matter when retirement, health changes, divorce, or the death of a spouse affects the timing of a home sale. Special Section 121 rules may affect the timing and amount of a home-sale gain exclusion. 1. Surviving Spouse Rule: When the $500,000 Exclusion May Still Apply A surviving spouse may qualify for a $500,000 exclusion even when filing alone, provided all IRS conditions are met. The home must be sold within two years after the spouse’s death, and the surviving spouse must not have remarried by the sale date. The sale occurs within two years of the spouse’s death. The surviving spouse has not remarried by the sale date. Neither spouse used a home-sale exclusion on another property during the prior two years. The ownership and residence tests...

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...