Capital Gains and the Home Sale Exclusion: A Plain-English Overview
By David Parks · eXp Realty · The Apollo Group · 2 min read
The Short Answer
Many homeowners can exclude a large part of the profit from selling their primary residence from federal income tax if they meet ownership and use tests. Rules are detailed, so confirm with a tax professional.
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The basic idea
Under federal law, eligible sellers may exclude up to $250,000 of gain, or up to $500,000 for many married couples filing jointly, from the sale of a main home.
The usual tests
You owned the home for at least two of the last five years.
You lived in it as your main home for at least two of the last five years.
You have not used the exclusion on another home recently.
Your gain is generally the sale price minus selling costs and your adjusted basis, which includes the purchase price and certain improvements. Keep records of major improvements.
Special situations
Rental use, home offices, partial years, divorce, and inherited homes can change the rules. State tax rules may also apply.
Next steps
This is general information, not tax advice. A CPA or tax attorney can tell you how it applies to you before you list.
Key Takeaways
The basic idea: Under federal law, eligible sellers may exclude up to $250,000 of gain, or up to $500,000 for many married couples filing jointly, from the sale of a main home.
The usual tests: You owned the home for at least two of the last five years.
What counts toward your gain: Your gain is generally the sale price minus selling costs and your adjusted basis, which includes the purchase price and certain improvements.
Special situations: Rental use, home offices, partial years, divorce, and inherited homes can change the rules.
This article is general information, not legal, tax, financial or inspection advice. Every home and situation is different, so confirm details with a licensed inspector, lender, attorney or tax professional.
David is a Greater Denver real estate advisor with eXp Realty and The Apollo Group (Colorado broker license FA100103211). He has closed more than $55 million in volume, earned eXp Icon status in 2025, and holds a 5.0 rating on Zillow from 27 verified reviews.