Selling Your Home: The $250,000 / $500,000 Tax-Free Gain and When You Go Over
Who qualifies for the home sale exclusion, a worked example for a single seller over the limit, and three ways to lower the tax.
By the MoneyBackKit team · Updated October 27, 2026 · 4 min read
When you sell your main home, up to $250,000 of the gain is tax-free if you're single, and up to $500,000 for a married couple filing jointly. Many people never owe a cent. But after years of price rises, more sellers are going over.
The rules
- You owned the home and lived in it as your main home for at least 2 of the 5 years before the sale (the 2 years don't have to be in a row).
- You haven't used the exclusion on another home in the past 2 years.
- For the $500,000 figure, both spouses must meet the use test and at least one the ownership test.
Example: bought for $300,000, sold for $750,000
| Single | Married filing jointly | |
|---|---|---|
| Gain | $450,000 | $450,000 |
| Excluded | $250,000 | $450,000 |
| Taxable gain | $200,000 | $0 |
| Federal tax on it (with $90,000 of other income) | $33,420 | $0 |
The single seller's $200,000 is taxed as a long-term gain, mostly at 15%, plus the 3.8% net investment income tax on the part above the threshold: about $33,420.
Ways to lower it
- Add improvements to your cost. A new roof, an addition or a kitchen remodel raise your basis; repairs and maintenance don't. Keep the receipts.
- Count selling costs. Agent commission, title and legal fees reduce the gain.
- Time the sale. If you're close to 2 years of living there, waiting can unlock the exclusion.