What's the Difference Between the Home Sale Exclusion and Capital Gains Tax?

When you sell your home, you may not owe any capital gains tax at all, thanks to the home sale exclusion. If you've owned and lived in the home as your primary residence for at least two of the last five years, you can exclude up to $250,000 of profit from taxes if you're single, or up to $500,000 if you're married filing jointly. Capital gains tax would apply to any profit above those exclusion amounts, or if you don't meet the ownership and use tests. The exclusion can be used repeatedly over your lifetime, as long as you haven't used it within the last two years. If you sell a home that you've used as a rental or investment property, the exclusion generally doesn't apply, and you'd owe capital gains tax plus depreciation recapture on the full gain.