Do I owe capital gains taxes if I sell my house but don't immediately buy another property?

So if I'm reading this right, the exception is based on it being a primary residence, not on whether I buy another house with the money? Does this mean I could technically use that money for something else entirely (like paying off debt or investing it) and still not owe capital gains?

Yes, that's exactly right! The Section 121 exclusion is based solely on the property being your primary residence for at least 2 of the 5 years before selling. What you do with the proceeds has absolutely no impact on the tax treatment. You could use that money to pay off debt, invest in the stock market, start a business, or just keep it in your savings account. None of that matters for tax purposes. The exclusion is specifically designed to prevent homeowners from being taxed when they sell their primary residence, regardless of what they do next.

How exactly does this tool work? Do you have to pay for it or subscribe? I'm in a somewhat similar situation but my profit will be closer to $300k so I'm trying to figure out if I'll owe taxes on the amount over $250k.

I'm a bit skeptical of these online tools... did you find the info it gave you was actually accurate? Did you double-check with an actual tax professional?

The tool is super straightforward - you upload your relevant tax documents and property information, and it analyzes everything based on current tax laws. It walks you through the specific sections of tax code that apply to your situation, which was really helpful for me. For your situation with profit over $250k, it would definitely help clarify exactly what portion would be taxable and at what rate. The analysis breaks everything down in plain language so you can understand the implications before making any decisions. I actually did verify the information with my CPA afterward, and he confirmed everything was accurate. That's why I recommend it - it gives you the knowledge upfront so you're better prepared when you do talk to a professional. It saved me a ton of worry and prevented me from making a rushed decision based on incorrect information.

Wait how does this actually work? The IRS phone lines are notoriously impossible to get through. Is this some kind of priority line or something?

Yeah right... There's no way you got through to the IRS in 20 minutes. I've literally spent HOURS on hold multiple times. Sounds like a scam trying to get people's money for something that doesn't actually work.

It's not a priority line exactly. It basically automates the calling process and navigates the IRS phone tree for you. Once it gets in the queue, it holds your place and calls you when an agent is about to pick up. Basically it does all the waiting for you so you don't have to sit on hold for hours. I was super skeptical at first too, honestly. I had tried calling the IRS four separate times and gave up after being on hold for over an hour each time. With this service, I just entered my phone number, and they called me back when an actual IRS agent was on the line. It saved me literally hours of frustration, and I got the tax answers I needed directly from the source.

Thanks! I've owned and lived in this house for a little over 4 years now, and this is my first home sale ever, so sounds like I should be good on both those points. The 2 year requirement is definitely met.

You're absolutely good to go then! Just keep decent records showing your residency timeline in case of any questions, but with 4 years of primary residence and it being your first sale, you're well within the requirements for the full exclusion. Take your time finding your next place!

I used TurboTax last year for my home sale. It does a pretty good job walking you through the home sale section and asks all the right questions to determine if you qualify for the exclusion. Just make sure you have your original purchase documents and info about any major improvements you made to the property, as those adjust your cost basis.

I'd definitely recommend going with a tax professional for your first home sale, especially if the numbers are significant. While TurboTax can handle straightforward cases, there are sometimes nuances that software might miss - like properly calculating your adjusted basis with home improvements, or understanding how different types of expenses factor in. A good CPA will make sure you're getting every deduction you're entitled to and can answer questions specific to your situation. The peace of mind is usually worth the extra cost when you're dealing with larger amounts.