Capital gains on your home sale: will you owe tax?
Short answer
If you owned and lived in the home as your main home for at least 2 of the 5 years before the sale, you can exclude up to $250,000 of gain from federal income tax, or $500,000 if you are married filing jointly. Your gain is not the sale price minus what you paid: it is the sale price minus selling costs, minus what you paid plus the improvements you made. For many long-time owners that brings the taxable amount to zero.
Not tax advice. Rules change; confirm with the IRS (Publication 523) or a tax professional.
At a glance
| Rule (federal, 2025 returns) | |
|---|---|
| Exclusion, single | Up to $250,000 of gain |
| Exclusion, married filing jointly | Up to $500,000 of gain |
| Ownership test | You owned the home 2 of the 5 years before the sale |
| Use test | You lived in it as your main home 2 of the 5 years before the sale (need not be consecutive) |
| Joint return | Either spouse meets the ownership test; both meet the use test |
| Used the exclusion on another home in the last 2 years | Generally not eligible |
| Received a Form 1099-S | Report the sale even if all the gain is excluded |
How to figure your gain
IRS Publication 523 works it out in steps:
1. Selling price of the home. 2. Selling expenses: the costs directly tied to selling, such as agent commission and the seller's closing costs. 3. Amount realized = selling price minus selling expenses. 4. Adjusted basis = what you paid (plus certain purchase costs) plus the improvements you made, such as a new roof, an addition or a kitchen remodel. Repairs and upkeep don't count. 5. Gain = amount realized minus adjusted basis. Then subtract your exclusion.
Source: IRS, Publication 523 (2025), Figuring Gain or Loss.
Two examples
These use our standard 6% estimate for selling costs; your actual costs may be lower or higher.
| Single, sells for $400,000 | Married, sells for $900,000 | |
|---|---|---|
| Selling costs (6% estimate) | $24,000 | $54,000 |
| Amount realized | $376,000 | $846,000 |
| Paid + improvements (adjusted basis) | $180,000 + $40,000 = $220,000 | $150,000 + $50,000 = $200,000 |
| Gain | $156,000 | $646,000 |
| Exclusion | $250,000 | $500,000 |
| Taxable gain | $0 | $146,000 |
In the second example, $146,000 would be a long-term capital gain on the federal return, and your state may tax it too. Keep receipts for improvements: they lower your gain dollar for dollar.
If you don't meet the 2-out-of-5 test
You may still get a partial exclusion if the main reason for the sale was a change in where you work, a health issue, or an unforeseeable event. Publication 523 has a worksheet that prorates the $250,000 or $500,000 by how long you met the tests. Source: IRS, Publication 523 (2025), Does Your Home Qualify for a Partial Exclusion of Gain.
Surviving spouses
A surviving spouse who sells within 2 years of the spouse's death can generally still use the $500,000 limit if the other requirements were met just before the death. Publication 523 lists the conditions. Source: IRS, Publication 523 (2025).
What the sale leaves you to buy with
Our retirement destination pages start from the same math: your sale price, minus 6% for selling costs, minus what you still owe. If taxes apply to your sale, set that money aside before you count what is left. Ask Chris →
FAQ
- Do I pay capital gains tax when I sell my house?
- Usually not on the first $250,000 of gain ($500,000 married filing jointly) if you owned and lived in it for 2 of the last 5 years.
- Do selling costs reduce my gain?
- Yes. Commission and the seller's closing costs come off the sale price before you figure the gain.
- Do home improvements reduce capital gains?
- Yes. Improvements add to your basis. Repairs and routine upkeep don't.
- Do I have to report the sale if I owe nothing?
- If you received a Form 1099-S, yes, even if the whole gain is excluded.
- Can I use the exclusion more than once?
- Yes, but generally not if you used it on another home in the 2 years before this sale.
Sources
Last reviewed October 21, 2026. Not tax advice.