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§121 home-sale exclusion: $400,000 → $250,000 excluded

IRC §121 excludes up to $250,000 ($500,000 MFJ) of gain on the sale of a principal residence. $400,000 single → $250,000 excluded + $150,000 taxable.

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Excluded under §121

$250,000.00

Exclusion cap: $250,000.00

Taxable gain: $150,000.00

IRC §121. Educational estimate, not advice. Confirm with the IRS or a CPA.

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Exclusion of gain on the sale of a principal residence

IRC §121 lets you exclude from gross income the gain from the sale of a principal residence if, during the 5-year period ending on the sale date, you owned and used it as your principal residence for periods aggregating 2 years. The cap is $250,000 ($500,000 if married filing jointly). The dollar amounts have been statutory since 1997 (no COLA). This is not the capital-loss limitation of §1211(b).

With a $400,000 gain (single): min($400,000, $250,000) = $250,000 excluded and $150,000 taxable. With $100,000: $100,000 excluded, no taxable gain.

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Formula

IRC §121 exclusion cap

excluded = min(realized gain, $250,000) | $500,000 if MFJ

GainStatusExcludedTaxable
$400,000Single / HoH / MFS$250,000.00$150,000.00
$400,000Married filing jointly$400,000.00$0.00
$100,000Single / HoH / MFS$100,000.00$0.00
$250,000Single / HoH / MFS$250,000.00$0.00
$600,000Married filing jointly$500,000.00$100,000.00

What this page is not

This is not the capital-loss limitation of IRC §1211(b) (that page limits losses, not gains). It does not compute long-term capital-gains brackets (those rates need a COLA cite). It does not apply the §121(c) partial exclusion for unforeseen circumstances or depreciation recapture. It assumes the 2-of-5-year test already holds.

Common mistakes

  • Excluding the full $400,000 as a single filer: the cap is $250,000.
  • Using $250,000 when filing jointly and both spouses meet the use test: the cap is $500,000.
  • Confusing this with §1211(b): that rule limits losses against ordinary income to $3,000.
  • Skipping the 2-of-5-year test: without it, §121 does not apply.

On Form 1040 / Schedule D. Unexcluded gain follows capital-gain rules. Pub. 523 covers the principal residence.

No. IRC §121(b) has used $250,000 / $500,000 since 1997. There is no COLA on this cap.

Informational estimate

Educational content, not tax advice. IRC §121. Confirm with the IRS or a CPA.