The section 121 gain exclusion tax rules remain as one of the most important tax rules for homeowners. The rules are fairly simple: A taxpayer is allowed to exclude from gain up to $250,000 ($500,000 for married people filing jointly) if on the 5 year window ending on the date of sale, they 1) Owned the home for at least 2 years, 2) Used the home as their main home for at least 2 years, and 3) May not have used the gain exclusion on the sale of any other home within 2 years. It seems simple, but once you start to apply this rule to the complicated twists and turns of life, then the complexity ramps up.
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