Section 121 Exclusion
The Section 121 exclusion lets homeowners exclude up to $250,000 ($500,000 for married filing jointly) of capital gain on the sale of a primary residence they have owned and used as their main home for at least two of the last five years.
What it means
IRC Section 121 is the tax provision governing gain exclusion on primary residence sales. To qualify, the taxpayer must own and use the home as their main residence for at least 2 of the 5 years preceding sale. Single filers exclude up to $250K; married filing jointly up to $500K.
Section 121 is separate from Section 1031. A primary residence does not qualify for 1031 exchange. However, Section 121 and 1031 can combine in specific situations — for example, a property used first as primary residence, then converted to rental, may use Section 121 partial exclusion plus 1031 on the investment portion, with specific rules.
Related terms
Keep reading