Capital Gains Rules for Military Families
Updated: 2 days ago
When military families sell a home they've rented out after a PCS, the tax question comes up fast: will we owe tax on the profit? As a military spouse for more than 30 years and an Arlington Associate Broker with 560+ transactions, I always suggest getting tax advice before you list. Here's how the main rules work.
This article is general information, not tax, legal or financial advice.
The home sale exclusion
If you sell your main home, you can exclude up to $250,000 of gain from income, or $500,000 for married couples filing jointly. To qualify, you generally must have:
Owned the home for at least two of the five years before the sale.
Lived in it as your main home for at least two of those five years. For the full $500,000, both spouses must meet the use test.
The military extension
Service members on qualified official extended duty can suspend the five-year period for up to 10 years. That generally means duty for more than 90 days at a station at least 50 miles from the home, or living in government quarters under orders. In practice, if you lived in the home for two years and then moved on orders, you may still qualify up to 15 years after you moved out.
What the exclusion doesn't cover
Gain above the limit is taxable.
Depreciation. If you rented the home out, you can't exclude gain equal to the depreciation you took or could have taken after May 6, 1997, even if you didn't claim it. That part is usually taxed when you sell.
Some periods of nonqualified use after 2008 can reduce the exclusion, though the rules have exceptions, including for military duty.
A partial exclusion
If you don't meet the two-year tests because of a PCS or another qualifying change, you may still qualify for a partial exclusion.
Plan before you sell
Keep records of your purchase price, improvements and depreciation.
Run the numbers with a tax professional before listing, especially if the home has been a rental for several years.
Compare selling with keeping it. My rent or sell guide can help.
In Northern Virginia
Many military owners here have built significant equity, so the limits and depreciation rules can matter. I can provide a current market analysis so you and your tax professional can estimate the gain.
Sources: IRS Publication 523; IRS Publication 527.
Last reviewed: October 2026
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