Which statement about capital gains exclusions on home sales is correct?

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The key idea is that you can exclude part of the gain from selling your primary home, but you don’t get an automatic, unlimited exclusion—it's limited and subject to IRS rules. Most people who meet the requirements can exclude up to $250,000 of gain if single, or $500,000 if married filing jointly, provided they owned and used the home as their main residence for at least 2 of the last 5 years. If you don’t meet those conditions, or if your gain exceeds the exclusion, the remaining amount is subject to capital gains taxation. There are additional nuances, like depreciation recapture if you claimed depreciation for business or rental use, which can affect how much gain is excluded. So the statement that there are potential capital gains exclusions upon sale, subject to IRS rules, best captures how this works.