Understanding the 250k Rule: IRS Capital Gains Tax Exemption for Homeowners

Learn about the 250k rule and how it impacts capital gains taxes for homeowners selling their primary residence.

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The 250k rule typically refers to the IRS tax exemption on capital gains for homeowners. If you sell your primary residence, you may exclude up to $250,000 of gain ($500,000 for married couples) from taxation, provided you meet certain ownership and use requirements.

FAQs & Answers

  1. What is the IRS 250k rule for homeowners? The IRS 250k rule allows homeowners to exclude up to $250,000 of capital gains taxes when selling their primary residence, or up to $500,000 for married couples filing jointly, subject to meeting specific ownership and use requirements.
  2. Who qualifies for the 250k capital gains exemption? To qualify for the 250k capital gains exemption, you must have owned and used the home as your primary residence for at least two out of the last five years before the sale.
  3. Are there any exceptions to the 250k rule? Yes, there are exceptions to the 250k rule, such as for certain situations involving divorce, change in employment, or unforeseen circumstances which may allow for prorated exclusions.
  4. How do I calculate my capital gains for the 250k exemption? To calculate your capital gains for the 250k exemption, subtract your home's adjusted basis (purchase price plus any improvements minus depreciation) from the selling price. If this amount is below $250,000 (or $500,000 for couples), you may qualify for the exclusion.

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