Don’t Miss Out on Your $500,000 Home Sale Tax Break
July 2025
If you're thinking about selling your home, there's a valuable tax break you don’t want to lose. Thanks to the Taxpayer Relief Act of 1997, many homeowners can exclude up to $500,000 of profit from capital gains taxes when selling their primary residence.
But here’s the catch: not everyone qualifies automatically—and missing a key requirement could cost you thousands.
What Is the Capital Gains Exclusion?
When you sell a home that has appreciated in value, you typically owe capital gains tax on the profit. However, under current IRS rules:
Single homeowners can exclude up to $250,000 of profit from capital gains taxes.
Married couples filing jointly can exclude up to $500,000.
You can also increase your cost basis (and reduce your taxable gain) by including qualifying home improvements and closing costs related to the purchase and sale.
This can add up to significant savings—but only if you meet the IRS requirements.
Do You Qualify for the Exclusion?
To claim the capital gains tax exclusion on your home sale, you must meet all of the following:
1. Ownership Requirement
You must have owned the home for at least two years before the sale.
2. Use Requirement
You must have lived in the home as your principal residence for a total of 24 months within the last 5 years.
The 24 months don’t need to be consecutive.
For married couples filing jointly, both spouses must meet the use requirement—even if only one spouse is on the title.
3. Frequency Rule
You can only use this exclusion once every two years. If you've already excluded gains from another home sale within the past two years, you’ll need to wait before using it again.
Important Exceptions & Limitations
There are a few situations where the capital gains exclusion doesn’t apply:
If the home was acquired through a 1031 exchange within the past five years.
If the seller is subject to expatriate tax (e.g., they’ve renounced U.S. citizenship).
If the property was not your primary residence, such as a rental or vacation home (though partial exclusions may apply in certain hardship cases).
Why This Matters Right Now
With real estate values having risen significantly in the past few years—especially in markets like Marin County and the Bay Area—many homeowners stand to realize substantial gains. Missing out on the $250,000–$500,000 exclusion could mean handing a huge portion of your sale proceeds over to the IRS.
Before you sell, review your eligibility or speak with a tax advisor to make sure you're in the clear.
Final Thoughts
Selling a home is more than just a real estate transaction—it’s a major financial event. Understanding your capital gains tax liability could save you thousands, if not hundreds of thousands, in taxes.
If you're thinking about selling your primary residence, or just want to make sure your records and timing are aligned, we’re here to help guide you through every step. Let’s talk strategy—before you list.
