Members of the U.S. military are subject to special rules in regard to the home sale gain exclusion. Learn more about the differences between a military member and a non-military member below.

Code Sec. 121 allows taxpayers to exclude gain on a home sale if they have owned and used the home as a principal residence for 2 of the 5 years prior to the sale. A reduced maximum exclusion may apply if the 2-year rule is not met because of an unforeseen circumstance that was not anticipated when the home was purchased, such as a work-related move of over 50 miles. Thus, a military taxpayer who sells his or her primary residence and does not meet the two-out-of-five-years ownership and use tests due to a move to a new permanent duty station may qualify for a reduced maximum exclusion amount.

A military taxpayer may choose to suspend the 5-year test period for ownership and use during any period the taxpayer (or spouse) serves on qualified official extended duty as a member of the Armed Forces. This means that the 2-year use test may be met even if, because of military service, the taxpayer did not actually live in his or her home for at least the required 2 years during the 5-year period ending on the date of sale.

The period of suspension cannot last more than 10 years and can be revoked by the taxpayer at any time. The 5-year period cannot be suspended for more than one property at a time.

A taxpayer is on qualified official extended duty when at a duty station that is at least 50 miles from his or her main home, or while residing under orders in government housing, for more than 90 days or for an indefinite period.