When a married couple sells their home after living there for five years, what is the maximum amount of capital gains they can exclude from their taxable income?

The maximum amount of capital gains that a married couple can exclude from their taxable income when selling their home is indeed $500,000, provided they meet certain conditions. To qualify for this exclusion, the couple must have owned and used the home as their primary residence for at least two out of the five years preceding the sale. This exclusion is available under the IRS rules for principal residences and is designed to encourage homeownership.

The $500,000 exclusion is specifically for married couples filing jointly, which acknowledges that they typically have joint ownership of the property. If a single taxpayer were selling their home, they would only be entitled to exclude up to $250,000 of capital gains. This differentiation underscores the importance of understanding tax implications related to ownership structures and filing statuses when it comes to real estate transactions.