Thomas is selling his house for $504,999, expecting to net $400,000. Whether he pays capital gains tax depends on IRS criteria. Single filers can exclude up to $250,000, while married couples can exclude $500,000 if they meet certain conditions.

To qualify for the exclusion, one must have owned and lived in the home for at least two years preceding the sale and not claimed the exclusion in the previous two years. If criteria are met, exclusion is available; otherwise, capital gains tax is owed on all proceeds.

In a scenario where a married couple files jointly and nets $400,000 from a home sale, they qualify for a $500,000 exclusion, eliminating the need to pay capital gains tax. However, if single, the exclusion is $250,000, leaving $150,000 subject to a potential 15% tax rate.

Those who have owned a home for less than a year will be taxed at short-term capital gains rates, potentially as high as 35% based on total income. On the other hand, those who have owned a home for over a year will only pay a 15% capital gains tax on proceeds.

Exceptions to the rules exist, but generally, meeting the two-year ownership and residency requirements leads to a significant exclusion. Those who don’t meet the criteria will owe capital gains tax on the full amount and should consider speaking with a financial advisor for guidance.

Read more at Yahoo Finance: I’m Selling My House and Netting $400k. Will I Owe Capital Gains Tax?