Section 121: The $500k Exclusion Explained

Tax in Action: Practical Strategies for Tax Pros

Jeremy breaks down the complex rules surrounding Section 121's capital gains exclusion for home sales, using the Weber v. Commissioner tax court case to illustrate how taxpayers can lose out on excluding up to $500,000 in gains. The episode covers the critical two-out-of-five year ownership and use tests, explains how rental conversions can disqualify you from the exclusion, and details the partial exclusion exceptions for employment changes, health issues, and unforeseen circumstances. Understanding these nuances is essential since home sales often represent the largest financial transactions in taxpayers' lives.

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• (00:00) - Section 121
• (01:05) - Capital Gain Exclusion Introduction
• (03:21) - Case Study: Webert vs Commissioner
• (05:51) - Defining Principal Residence
• (15:58) - Ownership and Use Tests
• (27:43) - Understanding Spousal Eligibility for Exclusion
• (28:51) - Principal Residence Usage Requirements
• (30:52) - Counting Days and Periods of Absence
• (32:36) - Special Considerations for Older Taxpayers
• (33:57) - Ownership Through Trusts and LLCs
• (36:57) - The Once Every Two Years Rule
• (41:10) - Non-Qualified Use Explained
• (47:06) - Case Study: The Webers' Tax Court Case
• (48:12) - Partial Exclusions and Safe Harbors
• (56:51) - Conclusion and Key Takeaways

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