26 USC 121 - Exclusion of gain from sale of principal residence

U.S Code last checked for updates: Apr 24, 2025

§ 121.

Exclusion of gain from sale of principal residence

(a)

Exclusion

(b)

Limitations

(1)

In general

(2)

Special rules for joint returns

In the case of a husband and wife who make a joint return for the taxable year of the sale or exchange of the property—

(A)

$500,000 Limitation for certain joint returns

Paragraph (1) shall be applied by substituting “$500,000” for “$250,000” if—

(i)

either spouse meets the ownership requirements of subsection (a) with respect to such property;

(ii)

both spouses meet the use requirements of subsection (a) with respect to such property; and

(iii)

neither spouse is ineligible for the benefits of subsection (a) with respect to such property by reason of paragraph (3).

(B)

Other joint returns

(3)

Application to only 1 sale or exchange every 2 years

(4)

Special rule for certain sales by surviving spouses

(5)

Exclusion of gain allocated to nonqualified use

(A)

In general

(B)

Gain allocated to periods of nonqualified use

For purposes of subparagraph (A), gain shall be allocated to periods of nonqualified use based on the ratio which—

(i)

the aggregate periods of nonqualified use during the period such property was owned by the taxpayer, bears to

(ii)

the period such property was owned by the taxpayer.

(C)

Period of nonqualified use

For purposes of this paragraph—

(i)

In general

(ii)

Exceptions

The term “period of nonqualified use” does not include—

(I)

any portion of the 5-year period described in subsection (a) which is after the last date that such property is used as the principal residence of the taxpayer or the taxpayer’s spouse,

(II)

any period (not to exceed an aggregate period of 10 years) during which the taxpayer or the taxpayer’s spouse is serving on qualified official extended duty (as defined in subsection (d)(9)(C)) described in clause (i), (ii), or (iii) of subsection (d)(9)(A), and

(III)

any other period of temporary absence (not to exceed an aggregate period of 2 years) due to change of employment, health conditions, or such other unforeseen circumstances as may be specified by the Secretary.

(D)

Coordination with recognition of gain attributable to depreciation

For purposes of this paragraph—

(i)

subparagraph (A) shall be applied after the application of subsection (d)(6), and

(ii)

subparagraph (B) shall be applied without regard to any gain to which subsection (d)(6) applies.

(c)

Exclusion for taxpayers failing to meet certain requirements

(1)

In general

In the case of a sale or exchange to which this subsection applies, the ownership and use requirements of subsection (a), and subsection (b)(3), shall not apply; but the dollar limitation under paragraph (1) or (2) of subsection (b), whichever is applicable, shall be equal to—

(A)

the amount which bears the same ratio to such limitation (determined without regard to this paragraph) as

(B)

(i)

the shorter of—

(I)

the aggregate periods, during the 5-year period ending on the date of such sale or exchange, such property has been owned and used by the taxpayer as the taxpayer’s principal residence; or

(II)

the period after the date of the most recent prior sale or exchange by the taxpayer to which subsection (a) applied and before the date of such sale or exchange, bears to

(ii)

2 years.

(2)

Sales and exchanges to which subsection applies

This subsection shall apply to any sale or exchange if—

(A)

subsection (a) would not (but for this subsection) apply to such sale or exchange by reason of—

(i)

a failure to meet the ownership and use requirements of subsection (a), or

(ii)

subsection (b)(3), and

(B)

such sale or exchange is by reason of a change in place of employment, health, or, to the extent provided in regulations, unforeseen circumstances.

(d)

Special rules

(1)

Joint returns

(2)

Property of deceased spouse

(3)

Property owned by spouse or former spouse

For purposes of this section—

(A)

Property transferred to individual from spouse or former spouse

(B)

Property used by former spouse pursuant to divorce decree, etc.

(C)

Divorce or separation instrument

For purposes of this paragraph, the term “divorce or separation instrument” means—

(i)

a decree of divorce or separate maintenance or a written instrument incident to such a decree,

(ii)

a written separation agreement, or

(iii)

a decree (not described in clause (i)) requiring a spouse to make payments for the support or maintenance of the other spouse.

(4)

Tenant-stockholder in cooperative housing corporation

For purposes of this section, if the taxpayer holds stock as a tenant-stockholder (as defined in section 216) in a cooperative housing corporation (as defined in such section), then—

(A)

the holding requirements of subsection (a) shall be applied to the holding of such stock, and

(B)

the use requirements of subsection (a) shall be applied to the house or apartment which the taxpayer was entitled to occupy as such stockholder.

(5)

Involuntary conversions

(A)

In general

(B)

Application of section 1033

(C)

Property acquired after involuntary conversion

(6)

Recognition of gain attributable to depreciation

(7)

Determination of use during periods of out-of-residence care

In the case of a taxpayer who—

(A)

becomes physically or mentally incapable of self-care, and

(B)

owns property and uses such property as the taxpayer’s principal residence during the 5-year period described in subsection (a) for periods aggregating at least 1 year,

then the taxpayer shall be treated as using such property as the taxpayer’s principal residence during any time during such 5-year period in which the taxpayer owns the property and resides in any facility (including a nursing home) licensed by a State or political subdivision to care for an individual in the taxpayer’s condition.

(8)

Sales of remainder interests

For purposes of this section—

(A)

In general

(B)

Exception for sales to related parties

(9)

Uniformed services, Foreign Service, and intelligence community

(A)

In general

At the election of an individual with respect to a property, the running of the 5-year period described in subsections (a) and (c)(1)(B) and paragraph (7) of this subsection with respect to such property shall be suspended during any period that such individual or such individual’s spouse is serving on qualified official extended duty—

(i)

as a member of the uniformed services,

(ii)

as a member of the Foreign Service of the United States, or

(iii)

as an employee of the intelligence community.

(B)

Maximum period of suspension

(C)

Qualified official extended duty

For purposes of this paragraph—

(i)

In general

(ii)

Uniformed services

(iii)

Foreign Service of the United States

(iv)

Employee of intelligence community

The term “employee of the intelligence community” means an employee (as defined by section 2105 of title 5, United States Code) of—

(I)

the Office of the Director of National Intelligence,

(II)

the Central Intelligence Agency,

(III)

the National Security Agency,

(IV)

the Defense Intelligence Agency,

(V)

the National Geospatial-Intelligence Agency,

(VI)

the National Reconnaissance Office,

(VII)

any other office within the Department of Defense for the collection of specialized national intelligence through reconnaissance programs,

(VIII)

any of the intelligence elements of the Army, the Navy, the Air Force, the Marine Corps, the Federal Bureau of Investigation, the Department of Treasury, the Department of Energy, and the Coast Guard,

(IX)

the Bureau of Intelligence and Research of the Department of State, or

(X)

any of the elements of the Department of Homeland Security concerned with the analyses of foreign intelligence information.

(v)

Extended duty

(D)

Special rules relating to election

(i)

Election limited to 1 property at a time

(ii)

Revocation of election

(10)

Property acquired in like-kind exchange

[(11)

Repealed. Pub. L. 111–312, title III, § 301(a), Dec. 17, 2010, 124 Stat. 3300]

(12)

Peace Corps

(A)

In general

(i)

on qualified official extended duty (as defined in paragraph (9)(C)) as an employee of the Peace Corps, or

(ii)

as an enrolled volunteer or volunteer leader under section 5 or 6 (as the case may be) of the Peace Corps Act (22 U.S.C. 2504, 2505).

(B)

Applicable rules

(e)

Denial of exclusion for expatriates

(f)

Election to have section not apply

(g)

Residences acquired in rollovers under section 1034

(Added Pub. L. 88–272, title II, § 206(a), Feb. 26, 1964, 78 Stat. 38; amended Pub. L. 94–455, title XIV, § 1404(a), title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1733, 1834; Pub. L. 95–600, title IV, § 404(a)–(c)(2), Nov. 6, 1978, 92 Stat. 2869, 2870; Pub. L. 97–34, title I, § 123(a), Aug. 13, 1981, 95 Stat. 197; Pub. L. 100–647, title VI, § 6011(a), Nov. 10, 1988, 102 Stat. 3691; Pub. L. 105–34, title III, § 312(a), Aug. 5, 1997, 111 Stat. 836; Pub. L. 105–206, title VI, § 6005(e)(1), (2), July 22, 1998, 112 Stat. 805; Pub. L. 107–16, title V, § 542(c), June 7, 2001, 115 Stat. 84; Pub. L. 108–121, title I, § 101(a), Nov. 11, 2003, 117 Stat. 1336; Pub. L. 108–357, title VIII, § 840(a), Oct. 22, 2004, 118 Stat. 1597; Pub. L. 109–135, title IV, §§ 402(a)(3), 403(ee), Dec. 21, 2005, 119 Stat. 2610, 2631; Pub. L. 109–432, div. A, title IV, § 417(a)–(d), Dec. 20, 2006, 120 Stat. 2965, 2966; Pub. L. 110–142, § 7(a), Dec. 20, 2007, 121 Stat. 1806; Pub. L. 110–172, § 11(a)(11)(A), Dec. 29, 2007, 121 Stat. 2485; Pub. L. 110–245, title I, §§ 110(a), 113(a), (b), June 17, 2008, 122 Stat. 1633, 1635; Pub. L. 110–289, div. C, title III, § 3092(a), July 30, 2008, 122 Stat. 2911; Pub. L. 111–312, title III, § 301(a), Dec. 17, 2010, 124 Stat. 3300; Pub. L. 113–295, div. A, title II, §§ 212(c), 213(c)(1), 221(a)(20), Dec. 19, 2014, 128 Stat. 4033, 4040; Pub. L. 115–97, title I, § 11051(b)(3)(A), Dec. 22, 2017, 131 Stat. 2089.)

cite as: 26 USC 121

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