If you own and occupy your home for at least two years (730 days) of the previous five years, you can get a $250,000 exclusion from capital gains on a sale. Married couples get a $500,000 exclusion.
Moreover, the IRS approves partial exclusions if a house is sold in less than two years because of "unforeseen circumstances." These partial exclusions might shelter the entire gain from tax.
Suppose, for example, you buy a house and sell it after one year for a $50,000 profit. One year is half of the two-year requirement so you could qualify for half the exclusion: $125,000, if you’re single. So you’d owe no tax on a $50,000 gain.
For such a partial exclusion, the IRS often accepts reasons relating to health or employment. Suppose, for example, a police officer buys a condo in a no-pets complex, and then gets assigned to a K-9 unit in which he must keep the dog with him at home. Selling the condo would be necessary and a partial capital gain exclusion would be accepted.
Similar allowances are granted in case of divorce or multiple births from the same pregnancy.
