Short answer
Maybe not. The IRS lets you exclude up to $250,000 of gain on a sale of your main home, or $500,000 if you are married filing jointly, if you owned and lived in it at least 2 of the last 5 years. Gain above that, or a house that does not qualify, can be taxed.
The exclusion
IRS Publication 523 says you may exclude the first $250,000 of gain from the sale of your home if you are single. The exclusion is $500,000 for a married couple filing jointly. This is the section 121 exclusion, and it applies to gain, not to the sale price. Gain is generally the sale price minus your basis and selling costs.
The two-year tests
To qualify, you must pass an ownership test and a use test. You must have owned the home for at least 24 months during the 5 years before the sale and used it as your main home for at least 24 months in that period. The tests look at when you owned and lived in the house, so the timing of your move matters. If you moved out two years ago and rented the house since, you may still meet the use test because the IRS looks at the five years before the sale. If you moved out four years ago, you may not. Gather proof of your dates, like utility bills and tax returns showing your address. A tax professional can confirm how the tests apply to you.
A surviving spouse and partial exclusions
Publication 523 says a surviving spouse who has not remarried may be able to claim the $500,000 exclusion when selling within 2 years of the spouse's death, if other conditions are met. Taxpayers who do not meet the full tests may qualify for a reduced exclusion for work-related moves, health reasons or unforeseeable events.
Two quick examples
These are simple illustrations. A single owner bought a home years ago and sells it with a gain of $180,000. The gain is under the $250,000 exclusion, so none of it is taxed, if the ownership and use tests are met. A married couple filing jointly sells with a gain of $600,000. They exclude $500,000, which leaves $100,000 to report. Gain is not the same as the sale price, and basis, improvements and selling costs change it. Keep records of what you paid, what you spent on improvements, and what you pay at sale. A tax professional can finalize the numbers.
Reporting and next steps
The IRS says sales are reported on Form 8949, and Form 1099-S shows the proceeds. A tax professional can calculate your gain and tell you whether you will owe tax. If you plan to sell and want certainty on timing, Kaizen Home Buyers buys houses as-is for cash. We make an offer within 24 hours, with no repairs and no agent commission, and can close in 14 to 30 days or on your date. Call 267-329-0084.