Ask the Editor — Questions on Home Sales and Taxes

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at questions on home sales and calculating tax basis in a home. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Selling a Home Early Because of Job Change

Question: I am married, and I bought my home 14 months ago. My company is relocating, and I must move out of state for work. I plan to sell the home next month. Can I exclude any gain from the home sale?

Joy Taylor: Generally, if you have owned and lived in your main home for at least two out of the five years before the sale date, up to $250,000 ($500,000 for joint filers) of your gain when you sell the home is tax-free, and you would pay capital gains tax on the excess gain. In your case, you don’t meet the two-out-of-five-year ownership and use periods. However, you are not out of luck. Some people who sell a home early may still be eligible for a portion of the exclusion, depending on the circumstances. For example, early sales due to job changes, illness, or unforeseen circumstances qualify for the partial exclusion. The percentage of the $250,000 or $500,000 gain exclusion that can be taken is equal to the portion of the two-year period that you used the home as a residence. You can use days or months for this calculation.

For example, say you bought your home for $740,000 in April 2024, and you sell it for $790,000 in July 2025 because of your out-of-state job move. The maximum gain exclusion in this instance is $312,500 ($500,000 x (15/24)). So, your $50,000 gain would be fully excluded from income and be tax-free.

2. Unforeseen Circumstances