What is the 121 exclusion for selling a house?

Up to $250,000 for individuals, $500,000 for married couples

What are exceptions to the 121 exclusion for selling a house?

Expatriates, recent property exchange, failure to meet use and ownership test

Purchase price plus additional costs, minus depreciation recapture

Improvements like adding rooms, landscaping, systems, and upgrades

To qualify for capital gains exclusion when selling a house, it must have been your primary residence for at least 24 of the previous 60 months, allowing individuals up to $250,000 and married couples filing jointly up to $500,000 in exclusion under the 121 rule.
Disqualified use, such as converting a rental property into a personal residence, can affect the amount of exclusion available when selling a house, and exceptions for partial exclusions include health-related moves and unforeseeable events, with depreciation recapture subject to 25% taxation.

How long must a house be a primary residence for capital gains exclusion?
24 of the previous 60 months
What is the 121 exclusion for selling a house?
Up to $250,000 for individuals, $500,000 for married couples
What are exceptions to the 121 exclusion for selling a house?
Expatriates, recent property exchange, failure to meet use and ownership test
How is the basis of a property calculated for capital gains?
Purchase price plus additional costs, minus depreciation recapture
What expenses can be added to the basis of a property for capital gains?
Improvements like adding rooms, landscaping, systems, and upgrades

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To qualify for capital gains exclusion when selling a house, it must have been your primary residence for at least 24 of the previous 60 months.
All assets, including houses, are considered capital assets, and selling them can result in taxable gains if their value has increased.
If a house's value has gone up, there will be a capital gain, but if it has decreased, there won't be any benefit.
There is an exclusion to capital gains for homes, known as the 121 exclusion, allowing individuals up to $250,000 and married couples filing jointly up to $500,000 in exclusion.
The 121 exclusion applies to houses lived in as primary residences for two of the last five years, not necessarily consecutively.
Exceptions to the 121 exclusion include expatriates, those who acquired the property through exchange in the last five years, and those who do not meet the use and ownership test.
For married couples, only one spouse needs to meet the ownership test, but both must meet the use test to qualify for the exclusion.
In cases of divorce, the spouse who retains ownership can use the other spouse's use to qualify for the exclusion.
Vacant land that was part of the residence may also be eligible for exclusion, and there are other exceptions based on specific circumstances.
Disqualified use, such as converting a rental property into a personal residence, can affect the amount of exclusion available when selling a house.

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Residence and business portions are calculated by days, not months, for exclusions.
Disqualified use can lead to partial exclusions.
Only one 121 exclusion is allowed every two years.
Selling a house within two years results in automatic denial.
1031 exchange within five years disqualifies from 121 exclusion.
Failure of use and ownership test can lead to partial exclusions.
Determining automatic disqualifications is the initial step.
Calculation for capital gains excludes depreciation.
Depreciation recapture is subject to 25% taxation.
Exceptions for partial exclusions include health-related moves and unforeseeable events.

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To calculate the gain from selling a property, deduct the depreciation recapture, which is taxed at 25%, from the total gain of $475,000.
Determine the sale price by considering cash or other forms of payment received, subtracting the property's basis (purchase price plus additional costs like fees, taxes, and commissions).
Add various expenses incurred during ownership to the basis, such as abstract fees, utility services, recording fees, survey fees, transfer costs, construction expenses, and real estate taxes.
Enhance the basis by including improvements made to the property, like adding rooms, landscaping, systems (heating, air conditioning), interior upgrades, and exterior additions (satellite dish, new roof).
Utilize the capital gains exclusion under 121 if no depreciation was taken or if the property was rented out without depreciation, avoiding dividend recapture and potentially coupling with a 1031 exchange for tax benefits.