Question

Mark and Lisa, married and filing jointly, bought their first home in 2020 and lived in it as their primary residence until selling it in July 2025. They realized a long-term capital gain of $575,000. Having met the ownership and use tests, how much of the gain can they exclude from income on their tax return?

Answer 1

They can exclude up to $500,000 (the Section 121 maximum for married filing jointly). With a $575,000 gain, $500,000 is excluded and the remaining $75,000 is taxable as a long‑term capital gain (and could be subject to any applicable surtaxes, e.g., NIIT).