Median home prices in the U.S increased by over 47% from 2020 to 2023. While this huge price appreciation is a welcome financial bonanza, it also creates a hidden tax trap.

Most doctors believe all home sale gains are tax-free, but that’s not the case. Rather, gains from the sale of your personal residence are taxed as capital gains to the extent not offset by the exclusion available under Section 121 of the tax law. If you qualify, you can exclude up to $250,000 of gains if single, and $500,000 if married.

To qualify for the sale exclusion, you must have owned the home and used it as your primary residence for at least 24 months during the 60 months (five years) leading up to the sale. For married couples, only one spouse must satisfy the ownership requirement, although both spouses must meet the residency test.