How does the home-sale capital gains exclusion of $250,000 / $500,000 work?

When you sell your primary residence, you can exclude up to $250,000 of profit from capital gains tax if single, or $500,000 if married filing jointly. To qualify you must have owned and lived in the home as your main residence for at least 2 of the last 5 years – the years don't have to be continuous. Profit above the exclusion is taxed as a long-term capital gain. Your gain is the sale price minus your cost basis, and basis includes the purchase price plus major improvements (a new roof, an addition), so keep those receipts to shrink the taxable amount. You can use this exclusion repeatedly, but generally not more than once every two years. A partial exclusion may apply if you move early for a job, health, or other unforeseen circumstances.