Section 121 exclusion
Certified Financial Planner glossary · Certified Financial Planner
Definition
Allows exclusion of gain on a primary residence sale if ownership and use tests are met, subject to dollar caps and exceptions.
Section 121 exclusion in plain English
A couple sells a home they lived in for years and wants to keep hundreds of thousands of gain off the return. Section 121 allows exclusion of gain on a primary residence sale if ownership and use tests are met, subject to dollar caps and exceptions. Partial exclusion rules after unforeseen circumstances are the ignored constraint when the full two-year tests are not met. Do not grant the full exclusion automatically just because the property was once a primary home.
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