Quick guide · 3 min read
Selling your home
If you have owned and lived in your home for two of the last five years, up to $250,000 of gain ($500,000 for married couples) is excluded from tax.
- Who it fits
- Homeowners selling a main residence.
- Figures
- 2026 tax year
The key rule
Ownership and use: two of the five years before the sale. The exclusion can be used once every two years.
3 steps
Work out your basis
Purchase price plus closing costs plus improvements. Gather receipts for big projects.
Check the two-year tests
A partial exclusion can apply if you move early for a job change, health or other unforeseen reasons.
Plan for gains above the exclusion
Gains over the limit are long-term capital gains and may also face the 3.8% net investment income tax.
Example
A Bay Area sale
You and your spouse bought for $900,000, spent $100,000 on improvements and sell for $1,700,000 after $80,000 of selling costs. Your gain is $620,000. After the $500,000 exclusion, $120,000 is taxable.
Common mistakes
- If you rented the home or used part of it as a home office, some depreciation must be recaptured.
- Forgetting selling costs, such as agent commissions and transfer taxes, which reduce the gain.
Key dates
- Two years of ownership and use
- Earliest point for the full exclusion.
Questions we hear
Do I have to buy another home?
No. The exclusion no longer depends on buying a replacement.
What if we married recently?
Both spouses must meet the use test for the $500,000 exclusion, and at least one the ownership test.
What to send us
- Purchase and sale closing statements
- Improvement receipts
Upload them to your client portal.
General education for TaxSquad clients, not advice for your situation. Rules and figures change. Talk to us before acting on this guide.