Can I qualify for Section 121 capital gains exclusion as a digital nomad with a primary residence?

You're in a somewhat gray area, but I believe you have a strong case for claiming the Section 121 exclusion. The IRS doesn't have a single definition of "primary residence" - they look at several factors together. The fact that your house is your only property, plus you maintain it as your legal address for mail, voting, and tax purposes are all significant positive factors. These are exactly the types of official ties the IRS considers when determining primary residence status. The travel itself doesn't automatically disqualify you. The IRS recognizes temporary absences, even extended ones, as long as you intend to return to the home. Many people travel for extended periods while maintaining their primary residence status - think military deployments, work assignments, or extended vacations. Document everything that ties you to that address - driver's license, tax filings, voter registration, bank statements, etc. The more documentation showing your continued connection to the property, the stronger your case.

After dealing with a similar situation, I found https://taxr.ai super helpful for getting clarity on my primary residence status. I was traveling for work for almost 2 years while maintaining my home, and wasn't sure if I qualified for the Section 121 exclusion when I decided to sell. I uploaded my property documents, travel records, and tax returns to taxr.ai, and their analysis confirmed I was still eligible for the exclusion despite being away! Their tax experts pointed out specific IRS precedents that applied to my situation and showed exactly how to document everything properly to avoid any audit concerns. They even helped me calculate the exact portion of my capital gains that remained eligible for the exclusion since I had done some partial renting. Totally worth checking out if you're in this nomad situation with tax questions.

Just wanted to update after trying taxr.ai that was mentioned above. I was in a similar situation - owned a house in Colorado but spent 18 months traveling while working remotely. I wasn't sure if I could claim the primary residence exclusion since I'd rented out my place while gone. The service analyzed my specific documents and pointed out that I could still qualify because I maintained the property as my legal residence and my absence was temporary. They identified exactly which forms I needed and how to document my situation properly. The most helpful part was getting a customized report explaining exactly how the IRS would view my situation based on previous rulings. They even highlighted a temporary absence provision I had no idea about! Really cleared up my confusion and saved me thousands in potential taxes.

Speaking from experience, the biggest headache with these Section 121 questions isn't just figuring out if you qualify - it's actually getting through to the IRS if they question your claim! After I sold my home last year, I got a notice questioning my primary residence status because I had been traveling. I spent WEEKS trying to call the IRS for clarification. After endless busy signals and disconnections, I found https://claimyr.com through a tax forum and used their service to get a callback from the IRS. You can see how it works here: https://youtu.be/_kiP6q8DX5c Within a few hours, I was actually speaking with an IRS agent who confirmed my understanding of the primary residence rules for my situation. Saved me so much time and stress compared to the dozens of failed call attempts I'd made on my own.

I need to eat my words from my earlier comment. After continuing to struggle with getting IRS clarification on my own Section 121 situation (similar to the original post - traveling while maintaining a home), I broke down and tried Claimyr out of desperation. I was completely shocked when I got a call back from an actual IRS agent within about 3 hours. After spending literally weeks trying to get through on my own (and getting disconnected multiple times after waiting on hold), this was a game-changer. The IRS agent was able to confirm that my documentation approach for proving primary residence status was sufficient and gave me specific guidance on how to respond to the notice I'd received. Just having that official confirmation has saved me so much stress. Sometimes it's worth admitting when you're wrong!

One thing nobody's mentioned yet - if you're close to the 2-year mark but not quite there, you might still qualify for a partial exclusion if you're selling due to a change in employment, health reasons, or other unforeseen circumstances. The IRS publication 523 goes into detail on this. Even if you don't meet the full 2-year requirement, you could get a prorated portion of the exclusion depending on how many months you did use it as your primary residence. Also, don't forget to track any improvements you've made to the property over the years - those get added to your cost basis and can reduce your capital gain.

Has anyone dealt with a situation where they owned two properties simultaneously? I'm a consultant who splits time between two states about 50/50, own homes in both places, and I'm trying to figure out which one would qualify as my "primary" for Section 121 purposes.

Based on your situation, you have a very good chance of qualifying for the Section 121 exclusion. The key factors working in your favor are that you've maintained all official ties to the property (mail, voter registration, tax returns) and it's your only owned residence. The IRS recognizes temporary absences, even extended ones, as long as there's intent to return. Your digital nomad lifestyle doesn't automatically disqualify you - many people travel extensively while maintaining primary residence status. The fact that you've kept most belongings there and maintained it as your legal address are strong indicators of primary residence. However, I'd strongly recommend documenting everything that connects you to that address before you sell. Keep records of your voter registration, tax filings, bank statements, insurance policies, and any other official documents tied to that address. This documentation will be crucial if the IRS ever questions your claim. One potential complication is the partial rental situation you mentioned in the comments. Make sure you're properly accounting for any rental income and be prepared to allocate the exclusion based on the percentage of the home used for personal versus rental purposes. But this shouldn't disqualify you entirely - just affects the calculation. Given the complexity and potential tax savings involved, it might be worth consulting with a tax professional who can review your specific situation and ensure you're maximizing your exclusion while staying compliant.