2026 Home Sale Capital Gains Tax Exceptions for Seniors: IRS Section 121 Rules
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...