When you sell a house, generally you owe capital gains tax on the amount the house appreciated since you acquired it. However, if you live in the home, you may qualify for a homestead exclusion: up to $250,000 for an individual and $250,000 for a married couple filing a joint tax return.
In general, to qualify for the exclusion, you must meet both the ownership test and the use test. You’re eligible for the exclusion if you have owned and used your home as your main home for at least two years out of the last five years before you sold it.
Generally, you’re not eligible if you already took advantage of the exclusion on by selling another home in the past two years. For more information, the IRS provides this helpful guide: Publication 523 (2016), Selling Your Home.
This article was written by attorney Aaron Hall.