When you sell your home, you can avoid tax on gains up to $500,000 ($250,000 if you’re a single taxpayer). If you follow the rules, you can use this tax break repeatedly, with no limit.
To qualify for this tax break, you must have owned the home and used it as your principal residence for at least two years (730 days) out of the five years before the sale. Proving the dates of ownership generally will not be hard to do, if you have records of buying and selling the house. Showing how long you lived there might be difficult, though, if you are challenged.
Thus, you should keep a moving-company receipt to show when you moved into your home. Keep copies of some phone or utility bills and payroll check stubs showing your address to prove how long you lived there.
Even if you owned and lived in the house for less than two years before a sale, you can get a partial exclusion if unforeseen circumstances dictated the move. Say you lived in a house for one year before the birth of twins forced you to move. Because one year is 50 percent of two years, you’d get 50 percent of the maximum tax break: up to $250,000 on any gain on the house sale, or up to $125,000 if you’re a single filer.