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Selling a Home . . .There May be a Tax Break for That. . .
If you’re a homeowner and selling your principal residence two questions:
Did you live in it as your only home (principal residence) for at least two years?
Was the time period lived there end within five years of the home sale date?
If you answered both of the above questions as Yes and you did not sell any other home within two years of the current home sale, then you may be able to exclude up to $250,000 (single filers) or $500,000 (Joint filers) of capital gain from the sale of their Principal Residence.
If you couldn’t answer yes to all of the above questions then there still may be a smaller tax exclusion, especially if the sale or move was because of a military assignment, family member’s health or for unforeseeable circumstances.
No you do not have to replace your residence for the gain exclusion. However, if taxpayers sold a principal residence before May 1997 and excluded home sale gain, they may have to subtract the excluded gain from basis of the home they are now selling (see IRS Publication 523)
If the home was converted to business use (e. g. rental) before the sale then different rules may apply.
For more information see: IRS Publication 523 , IRS Publication 530 and tax law IRC Section 121.