What potential consequence might a seller face if they do not qualify for capital gains exclusion?

A seller who does not qualify for the capital gains exclusion faces the liability of paying capital gains tax on the profit earned from the sale of their property. The capital gains exclusion allows homeowners to potentially exempt a significant portion of their gain from taxes, provided they meet certain criteria, such as living in the home for at least two of the five years prior to the sale. If these criteria are not met, any profit exceeding the exclusion limits would be subject to taxation. This tax liability can significantly impact the seller's financial outcome from the transaction, as they would owe taxes on the gain realized from the sale. Understanding this consequence emphasizes the importance of the capital gains exclusion and encourages sellers to be aware of their eligibility status when deciding to sell their property.