Do I pay capital gains tax when I sell my home?

Section 121 exclusion: $250K single / $500K married excluded if you owned and lived in the home 2+ of the last 5 years. Above the exclusion, you pay capital gains.

The Section 121 exclusion (often called "primary residence exclusion") lets most homeowners avoid capital gains tax on the sale of their primary home. The rules: (1) You must have owned the home for at least 2 of the last 5 years before sale. (2) You must have lived in the home as your primary residence for at least 2 of the last 5 years. (3) You can't have used the exclusion in the prior 2 years (one exclusion per 2 years). Exclusion amount: $250,000 of gain for single filers, $500,000 for married filing jointly. Gain above the exclusion is taxed at long-term capital gains rate (0%, 15%, or 20% depending on income). Special situations: (a) Partial exclusion available for sales due to job change, health, or "unforeseen circumstances" (divorce, death, multiple births, etc.) - prorated based on time of ownership. (b) Investment-property-converted-to-residence: the exclusion is reduced by the time spent as a rental. (c) Inherited property gets a "stepped-up basis" - the heir's basis is the fair market value at date of death, often eliminating gains entirely on subsequent sale. Capital improvements (kitchen rebuild, roof replacement, addition) increase your basis and reduce gain. Repairs and maintenance do not increase basis. Keep records of capital improvements - many homeowners lose deduction value because they didn't track basis adjustments.