A homeowner may avoid paying tax on up to $250,000 worth of capital gains on the sale of a primary residence-married couples get a $500,000 exclusion. Moreover, you can claim this tax break more than once.
Under prior law, homeowners age 55 or older could exclude up to $125,000 worth of gains when selling a principal residence. This was a once-in-a-lifetime exclusion.
A tax law passed in 1997 changed the rules. Now, the exclusion’s upper limits are $250,000 and $500,000, as noted. To qualify for this exclusion, you must have owned the house and used it as a principal residence for at least two years out of the five years prior to the sale.
There is no limit to the number of times you can claim this exclusion, but you can’t use it more frequently than once every two years. You could sell your home, take the exclusion, and move into a vacation home. After two years of using your former vacation home as a principal residence, you can sell that house and once again claim a full exclusion.