A "121 property" typically refers to a primary residence that qualifies for certain tax benefits under Section 121 of the U.S. Internal Revenue Code. This section of the tax code provides a capital gains tax exclusion for homeowners when they sell their primary residence. Here's what you need to know about a "121 property" and the tax benefits associated with it:
Capital Gains Exclusion: Under Section 121, homeowners who meet certain criteria can exclude a portion of their capital gains from the sale of their primary residence from their taxable income when they file their federal income taxes.
Ownership and Use Tests: To qualify for the capital gains exclusion, homeowners must meet the following ownership and use tests:
They must have owned the home for at least two of the five years preceding the sale.
They must have lived in the home as their primary residence for at least two of the five years preceding the sale.
Exclusion Amount: As of my last knowledge update in September 2021, homeowners can exclude up to $250,000 in capital gains from the sale of their primary residence if they are single or up to $500,000 if they are married and filing jointly. This means that if the gain on the sale is less than the respective exclusion amount, no capital gains tax is owed to the IRS.
Frequency of Use: There is no limit to how many times you can use this capital gains exclusion, as long as you meet the ownership and use tests each time.
Exceptions: There are exceptions and special rules that may apply to specific situations, such as if you don't meet the ownership and use tests due to certain unforeseen circumstances or job-related moves.
Partial Exclusion: If you don't meet the ownership and use tests but sell your primary residence due to specific circumstances (e.g., a change in employment, health, or unforeseen events), you may be eligible for a partial exclusion.
It's important to note that tax laws can change, and the specific rules and exclusion amounts under Section 121 may have been updated since my last knowledge update in September 2021. Therefore, it's advisable to consult with a tax professional or the IRS website for the most current information and guidance regarding the capital gains tax exclusion for the sale of a primary residence.
