A PCS family that bought near Fort Leavenworth, built equity, and now has orders somewhere else often asks the same question: will I owe tax on the profit? For most military families the answer is no, and for some the rules are better than the general public gets. The details are worth knowing before you list, not after you sign.
The basic exclusion most homeowners already get
Under Section 121 of the tax code, you can exclude up to $250,000 of gain from the sale of your main home, or up to $500,000 if you are married filing jointly. To qualify, you generally must have owned the home and lived in it as your main residence for at least two of the five years before the sale. Those two years do not have to be consecutive, and the exclusion can generally be used once every two years.
What changes for military and certain government service
Service members get a meaningful extension. If you or your spouse is on qualified official extended duty, you can elect to suspend the five-year look-back period for up to 10 years, which effectively stretches the window to as long as 15 years. Qualified official extended duty generally means service at a duty station at least 50 miles from the home, or living in government housing under orders, for more than 90 days or an indefinite period.
How this plays out for a family that rents the house out
This is where the extension matters most for the family considering a rental after a PCS. A service member who lived in the home for two years before orders, rented it for several years while stationed elsewhere, and then sells can still qualify for the exclusion because the five-year clock was suspended during qualifying service. The suspension applies to one property at a time, so it is worth planning which home it is used for if you own more than one.
What the exclusion does not cover
The exclusion applies to gain, not to the whole sale price, and it does not erase every tax consequence. If you rented the home out, depreciation you claimed or were allowed to claim is generally taxed when you sell, even if the rest of the gain is excluded. Gain above the $250,000 or $500,000 limit is taxable, and a home that was never your main residence for the required period may not qualify at all.
Planning before you list
Know your purchase date, the dates you lived in the home, and your orders. Keep records of improvements, since they raise your cost basis and lower your taxable gain. Because the rules depend on your specific dates and filing status, confirm the details with a tax professional who works with military families before you make a decision, particularly if you plan to rent the home first. Your agent can help with price and timing, but the tax answer is a CPA’s to give.
If you are weighing a sale against holding the home as a rental after your orders, tell us your purchase date and timeline. We can map out the real estate side and point you toward a military-savvy tax professional for the tax side.
FAQ
How much profit can I exclude when I sell my home?
Up to $250,000 of gain, or $500,000 for married couples filing jointly, if you owned and lived in the home as your main residence for at least two of the five years before the sale.
How does military service change the two-out-of-five-year rule?
A service member or spouse on qualified official extended duty can elect to suspend the five-year test period for up to 10 years, which can extend the window to as long as 15 years.
What counts as qualified official extended duty?
Generally service at a duty station at least 50 miles from the home, or living in government housing under orders, for more than 90 days or an indefinite period.
Will I owe tax on depreciation if I rented the house first?
Generally yes. Depreciation claimed or allowed during the rental period is typically taxed at sale even when the remaining gain is excluded, so confirm the details with a tax professional.