Do I have to purchase a new home in order to avoid paying tax on the gain?

A taxpayer can exclude up to $250,000 ($500,000 married filing jointly) from the sale of a personal residence. To qualify, the taxpayer must have owned and used the home as a personal residence for at least two of the five years prior to the sale.

For the $500,000 exclusion for married filing jointly, both spouses do not need to meet the ownership criteria, only the requirement for personal residence.

This exclusion applies to only one sale every two years.