By Joy Taylor
From Kiplinger’s Personal Finance
The editor of The Kiplinger Tax Letter responds to readers asking about an exclusion that can shield a seller’s profits from taxes.
Question: My husband and I are thinking of selling our home. Will the gain be taxed?
Answer: It depends. Generally, if you have owned and lived in your main home for at least two out of the five years before the sale date, up to $250,000 ($500,000 for joint filers) of your gain is tax-free. Any gain exceeding the exclusion amounts is taxed at long-term capital gains rates of 0 percent, 15 percent, or 20 percent, depending on the amount of your taxable income.
Question: I am married, and I bought my home 14 months ago. My company is relocating and I must move out of state for work, so I plan to sell the home next month. Can I exclude any gain from the home sale?
Answer: Early sales due to job changes, illness, or unforeseen circumstances qualify for a partial exclusion. The percentage of the gain exclusion you can take is equal to the portion of the two-year period that you used the home as your residence. For example, say you bought your home for $740,000 in February 2025 and you sell it for $790,000 in May 2026 because of your out-of-state job move. The maximum exclusion in this instance is $312,500 ($500,000 × [15 months ÷ 24 months]). So your gain of $50,000 would be tax-free.
Question: My partner and I own our primary residence together and have lived here for 10 years. We plan to sell it next year. We aren’t married, and we file our taxes separately as single filers. When we sell the home, can each of us claim a $250,000 gain exclusion?
Answer: Yes, and any excess capital gain would be split between the two of you. Each of you, on your separately filed tax returns would report your share of the selling price and tax basis in your home to arrive at the gain.
An example: Say you sell your home for $1.5 million next year, and you have a total tax basis in the home of $200,000. Each of you would calculate your separate gain based on 50 percent of these figures. On your single-filed tax return, you would calculate gain before the home-sale exclusion of $650,000 ($750,000 sale price − $100,000 tax basis). Your taxable gain is $400,000 ($650,000 total gain − $250,000 home-sale exclusion).
Question: My husband died in 2024, and in 2026 I plan to sell the home we owned together for many years. How much of my gain will be nontaxable?
Answer: A spouse who sells the family home within two years after the death of the other spouse gets the full $500,000 exclusion generally available only to joint filers, provided the two-out-of-five-year use and ownership tests were met before death.
Plus, if you don’t live in a community-property state, half the home will get a step-up in tax basis upon the death of the first-to-die spouse. If the house is held as community property, the entire tax basis is stepped up to fair market value when the first spouse dies.
Let’s say you and your husband bought your home for $150,000 many years ago in a non-community-property state, and it was worth $980,000 when your husband died in 2024. Your tax basis in the home jumps to $565,000 (your half of the original $150,000 cost basis plus half of the $980,000 value on your husband’s date of death). Twenty months later, you sell the home for $1,085,000. Of the $520,000 gain from the home sale ($1,085,000 – $565,000), $500,000 is tax-free, and $20,000 is taxed at long-term capital gains rates.
©2026 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC.
The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
