Capital gains Tax is payable on profit from sale of an investment or property. There are many things to consider while calculating the Capital Gains Tax on house sale. If you have sold your main residence then the profit from such sale need not come under taxable income. The important thing to note is that it should be your main home and not your second residence. One must also remember that Capital Gains Tax on sale of second house is only charged on the profit, that is the selling price minus the original cost of the house.
Capital Gains Tax on the profit from the sale of main residence is not totally exempt from tax. An individual is allowed no tax on a profit of $250,000 and a couple who is married, a profit of $500,000 is tax free. This tax free condition applies only on the main residence which has be lived in for a minimum period of two years. These two years also need not be at one stretch. Suppose you have owned the house for 8 years, you should have lived in it for the 24 months during that period of 8 years, and it should have been your main residence. So actually you can sell your main residence every two years and claim the tax exemption.
In certain cases if you have lived for less than 2 years you can still get an exemption on the Capital gains tax on a portion of the profits from the sale of the main house. Generally this exemption is allowed when you change your residence because of health issues, or you need to change your location because of your job.
When you sell your main residence within 24 months due to your health deteriorating in that location, you will need to gather the proper documentation from your doctor. This letter from the doctor can be used as proof if the IRS requires such information.
When you sell your main residence because you have to move to another area to carry on with your present job or you have taken up a new job, you will have to pay capital gains tax only on a portion of the profit from the sale.
There is also a provision where you can get part of your Capital gains tax exempted in case of unforeseen circumstances like war, natural disasters, divorce, death, terrorism and some more.