Can I Avoid Capital Gains Tax on My Home Sale?

Yes — the Section 121 exclusion lets you exclude up to $250,000 of profit ($500,000 for married filing jointly) from a home sale if you've owned and used the home as your primary residence for at least 2 of the last 5 years. You can use this exclusion every two years. Profit is calculated as the sale price minus your basis (what you paid plus improvements). Improvements like a kitchen renovation increase your basis and reduce your taxable gain. If you don't meet the two-year test due to job change, health, or other unforeseen circumstances, you may qualify for a partial exclusion. This exclusion is one of the most valuable tax benefits in the tax code for homeowners.