Questions on Section 121 Exclusion for Primary Residence and Capital Gains Tax

[Takahito Torimoto]

I understand that the Section 121 Exclusion for Primary Residence allows you to sell your Primary residence and not have to pay ANY capital gains taxes on the gains/proceeds - as long as you use those funds to purchase your next Primary residence.

What I cannot seem to find the answer to is - what is the maximum timeline allowed from Sale of the first Primary to Purchase of the replacement Primary residence?  And what are the requirements for those funds during that transition (i.e. do the funds have to be in a separate, isolated account - or escrow - similar to 1031 Exchange) when/if there is a time between the Sale of the first and Purchase of the replacement?

i.e. if I sell my Primary in January 2025, and I cannot find a replacement Primary to purchase (or cannot win any offers) - can I stay with a family member - until I am able to find AND win an offer on a replacement Primary residence?  What if that is 3-6-9-12 months later (although I would assume it has to be within the same calendar year for tax reporting purposes)?  Is there any requirements on where the funds from the proceeds of the original sale are supposed to be placed?

[Michael Plaks]

@Takahito Torimoto

Under Sec 121, there is no requirement to buy a replacement property at all. You can do whatever you want with the proceeds and live anywhere you want for as long as you want.