How does the capital gains exclusion work when I sell my home?

When you sell your primary residence, the home-sale exclusion lets you avoid capital gains tax on up to $250,000 of profit if you're single, or $500,000 if married filing jointly. To qualify, you generally must have owned and lived in the home as your main residence for at least two of the five years before the sale. Profit is your sale price minus your cost basis – the purchase price plus qualifying improvements and certain costs. So a couple who bought at $400,000 and sold at $800,000 could owe nothing on the $400,000 gain. Amounts above the exclusion are taxed as capital gains. Keep records of major improvements, since they raise your basis and shrink the taxable gain. Estimate the tax on any excess at wealthserene.com/tools/capital-gains.