The Sixteenth Amendment to the Constitution of the United States gives authority to Congress to tax income. The Internal Revenue Service defines revenue via a term ‘Gross Income’. In Chapter 26 of the Federal Code (Chapter 26 is the Internal Revenue Code) Section 61, Congress defines gross income as “… all income from whatever source derived…”. This means even the penny you pick up off the ground is considered income.
Section 121 of the Internal Revenue Code excludes the gain from the sale of a personal residence from income and therefore making the sale of a personal residence tax-free.