Whenever you sell a house, you are likely to earn a profit, otherwise known as a capital gain. Because home-sale profits are a form of taxable income, you can be taxed. However, there are certain circumstances that could allow you a tax break.

If you own a house or property and sell it less than a year of purchasing it, the capital gain is classified as “short-term” and taxed at the level of your ordinary income. This tax could be up to 37 %. However, “long-term” capital gains are taxed at a reduced percentage (between 15 and 20 %). But… there is a chance you could completely avoid paying taxes.

According to the Home Sale Exclusion rule, up to $250,000 (or $500,000 if you are married and filing jointly) of your home-sale profit could be tax free. There are just three requirements:

1. The house you are selling must be your primary residence.

2. You must have owned the house for at least two years.

3. You need to have lived in the house for at least two of the past five years.

For the third requirement, you don’t have to live in the house for two consecutive years. As long as your time in the home adds up to twenty-four months, you meet the criteria. You can also meet the requirement if you are a member of uniformed service, foreign service, or an intelligence agency. If you are residing in government housing under government orders and your base is located 50 miles from the house, you could count the time served as the time you resided in your house. You can also qualify if you are selling a house as part of your divorce settlement and your former spouse lived in the house for two years.

Use this rule to your advantage! Let’s say you want to sell your rental property. If you temporarily move into the property and designate it as your primary residence, you could qualify for this tax break and keep more of your capital gain. You can always get the primary residence status back at your other home. However, you need to keep thorough records to ensure you have substantial evidence of residency.

If you do not meet the three requirements for the Home Sale Exclusion, there are other options for a tax reduction.

1031 Exchange If you are selling an investment property and purchasing another in its place, you qualify for the 1031 exchange. This exchange completely removes any taxes on your capital gain since they are being reinvested in a new property. To meet the requirements for the exchange, the new property must be similar, equal or greater in value to the one you are selling, and identified within 45 days. Additionally, you can never “touch” the profit. A qualified intermediary will hold the money in escrow until the exchange is complete. The 1031 Exchange has complex deadlines and niche requirements so be sure you enlist a qualified intermediary to help you with the transaction.

Opportunity Zones Opportunity Zones were created as a tax incentive for people to invest in distressed areas and create economic growth. If you own real estate in an opportunity zone, you can defer taxes on the capital gains if you invest the gain in a Qualified Opportunity Fund. The longer you keep the money in the fund, the greater the benefits. You can find opportunity zones near you here.

Deduct Expenses What if your profit is over $250,000 or $500,000? To reduce your profit and thus meet the requirements for a tax break, you can deduct certain expenses you’ve spent on your home.

What you can deduct:

• Repairs, home additions (patios, landscaping, pools, new systems, etc.), losses in investment property income, fees to evict or locate a tenant, and closing costs from a property scale.

What you can NOT deduct:

• Any repairs that are ongoing or do not add monetary value to the home. The repairs or additions to the property must qualify as “improvements”.

Regardless of what tax reduction you qualify for, you will have to provide proof to be eligible. Good record keeping of improvements to the property or your time living in the home can make a large financial difference for you. These are only a few of the opportunities you have for tax benefit on capital gains. When selling your home, be sure you know all of options, so you can save as much as possible.