Do I pay tax if I sell my house for a $400,000 gain?

Married filing jointly with 2-of-5 ownership and use: no — the $500,000 §121 exclusion covers it. Single, the $250,000 cap leaves $150,000 taxable.

What if I move after one year for a new job?

The partial exclusion prorates by months of qualifying use over 24 — a work, health, or unforeseen-circumstances move after 12 months yields half the cap.

Does §121 cover the rental years?

Nonqualified use after 2008 is allocated out of the exclusion — and depreciation taken is recaptured as ordinary income regardless.

IRC §121 · 26 U.S.C. §121

IRC §121: Exclusion of Gain From Sale of Principal Residence

By Paul D. Diaz, EA, MBA · Updated September 20, 2026

IRC §121 excludes $250,000 of home-sale gain ($500,000 joint) — own and use the home 2 of the last 5 years and the gain is tax-free. The most-used exclusion in the Code.

What it governs

$250,000 single / $500,000 joint exclusion, ownership AND use tests
2 years out of the 5 ending on the sale date — need not be continuous
One exclusion per 2 years; partial exclusion for job, health, or unforeseen moves
Depreciation after May 6, 1997 is recaptured — §121 never shelters it

In the GuideFull treatment in Chapter 12 of the Guide (principal treatment) and Chapter 13 — THE TAX CUTTERY® Guide to Federal Income Taxation, Professional Edition (564 pages, 24 chapters).

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Questions this section answers

Do I pay tax if I sell my house for a $400,000 gain?: Married filing jointly with 2-of-5 ownership and use: no — the $500,000 §121 exclusion covers it. Single, the $250,000 cap leaves $150,000 taxable.
What if I move after one year for a new job?: The partial exclusion prorates by months of qualifying use over 24 — a work, health, or unforeseen-circumstances move after 12 months yields half the cap.
Does §121 cover the rental years?: Nonqualified use after 2008 is allocated out of the exclusion — and depreciation taken is recaptured as ordinary income regardless.

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