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I believe the key question is whether you lived in the house for two years out of the previous five years. If the answer is yes, then you pay no capital gains tax on the first $250k that you make from the sale of the property--and this amount doubles to $500k if you and your wife file jointly. If the answer is no, then you pay the full tax on your capital gains.

If you rented out your house for part of the time--part of the past 5 years, not part of the 2 years--then in addition you'd owe tax on the amount that you had to "recapture" from your depreciations, and you'd pay this at ordinary income rates.


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