Do I qualify for Section 121 exclusion if I've owned my house only since 2022? Or is 5 years required?

So just to be clear, the "5 years" part means you have a 5-year window during which you need to have lived there for 2 years? It's not that you need to own it for 5 years? I'm asking because I'm in a similar situation (owned home since April 2022) and thinking about selling next spring.

That's exactly right. The "5 years" refers to the lookback period. Within that 5-year window immediately before you sell, you need to have owned the home for at least 2 years and used it as your primary residence for at least 2 years. Those 2 years don't have to be continuous, either. For example, someone could live in their home for a year, rent it out for 2 years, then move back in for another year before selling - they'd still qualify because they lived there for 2 years total within the 5-year period.

Does it work for more complicated situations? I've been living in my house for 3 years but had to move out temporarily for 6 months for work. Will the tool understand these kinds of nuances with the Section 121 exclusion?

Sounds interesting but how does it know what home improvements count towards cost basis? I renovated my kitchen but didn't keep all the receipts. Would that be a problem?

It absolutely handles those nuanced situations! The tool has specific questions about temporary absences and automatically applies the IRS exceptions for work relocations, health situations, and other qualifying events. It would analyze your 6-month absence and tell you if it affects your eligibility. For home improvements without receipts, the tool provides guidelines for reasonable estimates based on standard costs for common renovations in your region. It helps you document these estimates in a way that would satisfy IRS requirements if needed. You can even upload photos of your kitchen renovation as supporting evidence.

How exactly does this work? I don't understand how any service could get you to the front of an IRS queue when everyone else is waiting for hours.

Yeah right. The IRS doesn't have some special line for people who pay a service. Sounds like a scam to me. I'll just keep calling and eventually get through.

It's completely legitimate and works by using a special callback system that most people don't know about. The service essentially navigates the complex IRS phone tree for you and requests a callback when an agent becomes available, which puts you in a much shorter queue than the general line. It's definitely not a scam. I was extremely skeptical too, but I was desperate after trying to get through for three weeks. The IRS has millions of calls and limited staff, so they actually have different routing systems that this service has figured out how to navigate efficiently. No special treatment - just smart use of the existing system.

Do minor renovations count too? Like I repainted all the rooms and installed new ceiling fans - would those count as improvements that increase my cost basis?

General maintenance and minor updates like painting typically don't count as capital improvements. They're considered repairs rather than improvements. Ceiling fans might count if they were new installations rather than replacements. Capital improvements are things that add value to your home, prolong its life, or adapt it to new uses. Examples include adding rooms, replacing the roof, adding central air conditioning, major renovations, etc. The IRS has Publication 523 which gives more details on what qualifies.

Yes! The IRS does have partial exclusions for certain circumstances when you sell before meeting the 2-year requirement. These include: 1. Job or employment changes where your new workplace is at least 50 miles farther from your home than your old workplace 2. Health reasons that medically necessitate a move 3. Unforeseen circumstances like death, divorce, multiple births from the same pregnancy, etc. If you qualify for one of these exceptions, you can get a partial exclusion based on the fraction of the 2-year period you did live there. For example, if you lived there for 1 year before having to relocate for work, you could exclude 50% of the maximum exclusion amount.

This is really helpful advice! I'm actually in a similar boat - bought my place in late 2022 and might need to sell next year for a job opportunity. The documentation tip is great - I hadn't thought about keeping records of the job offer and move details even though I qualify for the full exclusion. Better to be prepared! Quick question about the closing costs - do things like realtor commissions and title insurance count as selling expenses that reduce the capital gain? I'm trying to get a rough estimate of what my actual taxable gain might be.

Yes, absolutely! Realtor commissions, title insurance, attorney fees, transfer taxes, and other legitimate selling expenses all count as costs that reduce your capital gain. These are sometimes called "selling costs" and they're subtracted from your sale proceeds when calculating your actual gain. So if you sell for $300k but pay $18k in realtor commissions and $3k in other closing costs, your net proceeds would be $279k for tax purposes. This can definitely help keep you under the $250k exclusion limit if you're getting close. Just make sure to keep all the closing documents - your settlement statement will have everything itemized. Some people also forget that certain buying costs from when you purchased (like title insurance, recording fees, etc.) can be added to your original cost basis too, which further reduces your gain.

This is really great additional information! The once-every-2-years rule is definitely something people overlook. I'm curious about the timing strategy you mentioned - when you say "timing the sale strategically," are you referring to the fact that capital gains are taxed at different rates depending on your income level? I know there are 0%, 15%, and 20% capital gains tax brackets, so if someone's gain exceeds the Section 121 exclusion, having lower income in the year of sale could potentially save them from jumping to a higher capital gains rate. Is that what you're getting at, or are there other timing considerations I should be aware of?