You cannot exclude gain on the sale of your home if, during the 2-year period ending on the date of the sale, you sold another home at a gain and excluded all or part of that gain. If you cannot exclude the gain, you must include it in your income.

Exception. You still can claim an exclusion, but the maximum amount of gain you can exclude will be reduced, if the reason you sold the home was:

• A change in place of employment
• Health, or
• Unforeseen circumstances (as defined earlier)

With the exception of the 2-year waiting period, there is no limit on the number of times you can exclude the gain on the sale of your principle residence so long as you meet the ownership and use tests.

References:

• Publication 523, Selling Your Home
• Tax Topic 701, Sale of Your Home - after May 6, 1997
• Tax Topic 703, Basis of Assets

Source: www.irs.gov