Capital Gains Tax on Home Sales

Selling your home can result in a capital gain—the difference between what you paid for it and what you sell it for. Understanding the tax implications helps you plan accordingly.

The Primary Residence Exclusion

The good news: most homeowners won't owe capital gains tax on their primary residence sale.

Current exclusion amounts:

• Single filers: Up to $250,000 in gains excluded
• Married filing jointly: Up to $500,000 in gains excluded

Requirements to Qualify

To claim the exclusion, you generally must:

1. Have owned the home for at least 2 of the last 5 years
2. Have lived in it as your primary residence for at least 2 of the last 5 years
3. Not have claimed the exclusion on another home sale in the past 2 years

Calculating Your Gain

Your capital gain isn't simply sale price minus purchase price. Here's the formula:

Adjusted Basis = Purchase Price + Improvements - Depreciation

Capital Gain = Sale Price - Selling Costs - Adjusted Basis

What Counts as Improvements?

• Room additions
• New roof
• HVAC replacement
• Major remodeling
• New windows or siding

Routine maintenance and repairs don't count.

Special Situations

Military Personnel

Service members get special treatment. If you're on qualified extended duty, you can suspend the 5-year test period for up to 10 years. This means you could potentially qualify for the exclusion even if you've been away from the home for years.

Partial Exclusion

If you don't meet the full requirements, you might still qualify for a partial exclusion due to:

• Work relocation
• Health issues
• Unforeseen circumstances

Investment Properties

Investment and rental properties don't qualify for the primary residence exclusion. Different rules apply, including potential depreciation recapture.

Consult a Tax Professional

Tax laws are complex and change frequently. This overview provides general information, but your specific situation may differ. Always consult with a qualified tax professional before making decisions based on tax implications.

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Have questions about selling your home? Contact Greg Franklin or call (559) 816-7780 to discuss your situation.