Definition
A federal tax benefit allowing homeowners to exclude up to $250,000 ($500,000 for married couples) of capital gains from the sale of a principal residence.
Where you’ll meet it
Should I sell, and what's my house worth?
See it in Selling my home · Step 1About this term
To qualify for the full exclusion, you must have owned and lived in the home for at least 2 of the last 5 years before sale. The exclusion applies to gains only, not losses. Gains exceeding the exclusion amount are taxed as capital gains. You can use this exclusion only once every 2 years. The time period can be extended if you changed residence due to work, health, or unforeseen circumstances.
Pro Tip
Keep documentation proving your 2-year ownership and use test to claim the exclusion.
Example
A single homeowner sold their home for $450,000 after buying for $250,000, creating a $200,000 gain that was entirely excluded from taxation.