My client bought a home a few years ago. Now my client wants to sell it and take advantage of the tax exclusion of up to $250,000 on the proceeds. What criteria does my client have to meet to qualify for the tax exclusion?

The IRS allows a seller to exclude from taxable income a gain of up to $250,000 on the sale of a home (or $500,000 if the seller is married filing jointly) if the taxpayer meets the following criteria:

  1. Owned the home and used it as a principal residence during at least two of the last five years before the sale
  2. Didn’t exclude a gain on another home sold during the two years before the current sale
  3. Didn’t acquire the home through a 1031 exchange during the past five years.

Some special circumstances such as divorce, death of a spouse, or military service can affect a taxpayer’s eligibility to make use of the exclusion. Additionally, taxpayers who don’t qualify for the full exclusion might be eligible for a partial exclusion if the sale was due to a work or health related move, or an unforeseeable event. Have your client talk with a tax professional if any of these special circumstances apply to your client.