What Is the 121 Exclusion?
The "121 exclusion" refers to Section 121 of the Internal Revenue Code, which lets homeowners exclude a large portion of the capital gain from selling their primary residence from federal income tax. It is one of the most valuable tax benefits of owning a home, allowing many sellers to pay no tax on their gain.
How Much Can Be Excluded
- Up to $250,000 of gain for a single filer
- Up to $500,000 of gain for a married couple filing jointly
- Gain above the exclusion is generally taxed as capital gain
The Ownership and Use Test
To qualify, the seller generally must have owned and used the home as a principal residence for at least two of the five years before the sale, and must not have used the exclusion on another home within the prior two years. Partial exclusions may apply for certain moves due to work, health, or unforeseen circumstances. Because Florida has no state income tax, the § 121 exclusion is realized entirely at the federal level — a meaningful benefit for Florida sellers, who should confirm eligibility with a tax professional.
Related Terms
- Capital Gain — What the exclusion shelters
- Title 26 U.S.C. — The Internal Revenue Code, home of § 121
- Sales Contract — The transaction that triggers the gain
Barnes Walker Real Estate
Barnes Walker's attorneys handle Florida home sales with attention to their federal tax consequences. Request a legal inquiry for assistance.
Federal Law Reference
26 U.S.C. § 121
Excludes up to $250,000 ($500,000 for married couples filing jointly) of gain from the sale of a principal residence owned and used as such for at least two of the prior five years.
Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC