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In Spring 2025, I sold one of my properties and successfully excluded $500,000 in capital gains, tax-free, thanks to the IRS Section 121 Exclusion. For those unfamiliar, this powerful rule allows homeowners to exclude up to $250,000 in capital gains if single, or $500,000 if married filing jointly, from the sale of a primary residence—as long as they meet the ownership and use tests.

Now it’s August 2025, and I’ve just been notified by my tenant that they’re vacating one of my rental properties at the end of their lease next month.

Given the San Francisco real estate market remains relatively strong, I’m now faced with a choice: Do I sell the property and take advantage of favorable pricing? Or do I hold onto it, knowing that if I wait until 2027, I could potentially exclude another $500,000 in capital gains—tax-free?

Let’s walk through how the exclusion works, how

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