Updated October 2026. IRS rules and 2025 tax brackets read on irs.gov on October 22, 2026. General information, not tax advice.
As of October 2026, most people can sell their main home without paying capital gains tax. The IRS lets you exclude up to $250,000 of gain, or $500,000 if you’re married filing jointly, when you owned and lived in the home for 2 of the last 5 years. Above that, records of improvements and selling costs shrink the taxable gain.
Jump to: 🏠 The $250,000 rule · 🪜 Lower the gain · 💲 Tax rates · 🤝 Other options · ❓ FAQ
Key takeaways
- Single filers can exclude up to $250,000 of gain on a main home, and joint filers up to $500,000, if they pass the 2-out-of-5-year tests.
- Improvements such as a new roof or central air add to your basis, and selling costs come off the price, so both cut the taxable gain.
- For 2025, long-term gains were taxed at 0% for joint filers with taxable income up to $96,700, and at 15% for most others.
- A 1031 exchange only works for investment or business property, not for the home you live in.
“Avoid” sounds like a trick. It isn’t. For a main home, the main tool is written into the tax code, and most sellers qualify. The rest is paperwork: knowing your real gain and keeping proof. Here’s how it works, with numbers.
How does the $250,000 home sale exclusion work?
The IRS calls it the home sale exclusion. If you have a capital gain from selling your main home, you may exclude up to $250,000 of it from income. Married couples filing jointly may exclude up to $500,000. That’s from IRS Topic 701, which you can read on the IRS website.
To qualify, you need to pass two tests during the 5 years before the closing date:
- Ownership test: you owned the home for at least 24 months.
- Use test: you lived in it as your main home for at least 24 months.
- The two periods don’t have to be the same 24 months.
- Generally, you can’t have used the exclusion on another home sale in the prior 2 years.
For a joint return, only one spouse has to meet the ownership test, but both must meet the use test. If you can’t meet the full rules, you may still get a partial exclusion. IRS Publication 523 lists the reasons: a job move, a health issue, or an unforeseeable event. For a job move, the new workplace generally has to be at least 50 miles farther from the home than the old one.
A worked example
Say you bought for $300,000 in 2016 and sell for $650,000 in 2026. You’re married and file jointly. Your gain before any adjustments is $350,000. That’s under the $500,000 limit, so in this example no federal capital gains tax is due on the sale.
Now say you’re single. The same $350,000 gain is $100,000 over your $250,000 limit. That $100,000 is what the next section tries to shrink.
How can you lower the taxable gain?
Your gain isn’t simply “sale price minus purchase price.” The IRS formula is: selling price, minus selling expenses, equals the amount realized. Then subtract your adjusted basis. Two things move that number in your favor.
1. Add improvements to your basis
Improvements add value, extend the home’s life or adapt it to new uses. Publication 523 lists examples: additions like a bedroom or deck, a new heating system, central air conditioning, a furnace, duct work, landscaping, a fence or a pool. Their cost goes on top of what you paid. Plain repairs, like fixing a leak, usually don’t count unless they’re part of a larger project.
2. Subtract selling expenses
The IRS lets you subtract selling costs from the price. Its list includes sales commissions paid to your agent, and some fees and closing costs. Keep the closing statement. If you sell with a flat fee, your selling costs are lower, so this line is smaller. You’ll usually still keep more cash, because the money stays with you instead of going out as a fee. Our home sale net profit guide shows the full math.
| Single seller example | Amount |
|---|---|
| Sale price | $650,000 |
| Selling expenses (fees, closing costs) | −$20,000 |
| Amount realized | $630,000 |
| Purchase price | −$300,000 |
| Improvements (roof, central air, deck) | −$45,000 |
| Gain | $285,000 |
| Exclusion (single) | −$250,000 |
| Taxable gain | $35,000 |
Those figures are an example. With receipts, the taxable gain fell from $100,000 to $35,000. Without receipts, you may not be able to prove the improvements. Start a folder now, even if you don’t plan to sell for years.
Records matter for more than taxes. The Consumer Financial Protection Bureau has plain guides on your mortgage and closing papers, and the closing statement is one of the papers you’ll want to keep.
What tax rate applies if part of the gain is taxable?
If you owned the home more than a year, the taxable part is a long-term gain. IRS Topic 409 gives the 2025 brackets, the latest listed when we read it:
| Rate | Single | Married filing jointly |
|---|---|---|
| 0% | Taxable income up to $48,350 | Up to $96,700 |
| 15% | $48,351 to $533,400 | $96,701 to $600,050 |
| 20% | Above $533,400 | Above $600,050 |
In the single seller example, $35,000 at 15% would be $5,250 of federal tax. Some high earners may also owe the net investment income tax. State income tax can apply too, so check your state’s rules.
You must report the sale if you get Form 1099-S, even when the whole gain is excluded. You also report it if part of the gain is taxable, on Schedule D and Form 8949.
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Buy a home →What other ways reduce or delay the tax?
Wait until you pass the 2-year mark
If you’re a few months short of 24 months of ownership and use, waiting can be worth a lot. Check the dates against your closing date, not your contract date.
Inherited homes get a new basis
If you inherit a home, your basis is usually its fair market value on the date of death, per Publication 523. Selling soon after often means little or no gain. Our guide to selling a deceased parent’s house covers the steps, and homes held in a trust follow the rules in selling a house in a trust.
A 1031 exchange is for investment property
A like-kind exchange lets you defer gain when you swap business or investment real estate for other like-kind property. It doesn’t apply to the home you live in. If you also receive cash in the exchange, that part is taxed.
Converting to a rental cuts both ways
Some owners rent the home out before selling. Rent can help, but depreciation you take is taxed later, and time as a rental can reduce the exclusion. Before you decide, look at local rent and price data. The FHFA publishes house price indexes by area, and the U.S. Department of Housing and Urban Development has renting and homeownership resources.
Selling below market to family
A discount to a relative can have gift tax effects. See the tax implications of selling below market value.
Can you avoid capital gains by buying another home?
No, buying a new home doesn’t shelter the gain by itself. For a main home, the exclusion is what does the work. For investment property, a 1031 exchange can defer the gain if the new property is also held for investment or business. If you sold stocks to fund the next purchase, read how capital gains from stocks affect home buying.
How does selling with Beycome affect your net?
Taxes are one part of what you keep. Fees are the other. With a Beycome flat fee MLS listing, you pay $99 upfront and $0 to Beycome at closing. Enhanced is $399. Concierge is $1,399, offered at $999 for a limited time, with experts who handle offers and negotiation while you make every decision.
Buying your next home? Our buyer program has no upfront fee. Beycome keeps 1% of the price, with a $1,499 minimum, and credits the rest of the buyer-agent commission to you at closing, with lender approval. On a $400,000 home where the seller offers 3%, that’s $8,000 back. Want a value estimate first? Try our home value calculator.
The 3% figure is an example only. Commissions are not set by law or by NAR rules and are fully negotiable. Sellers choose whether to offer any buyer-agent compensation, and how much. Since August 17, 2024, those offers can’t be shown on the MLS.
Capital gains on a home sale: questions
How do I avoid capital gains tax when selling my house?
Live in it and own it for 2 of the last 5 years. Then up to $250,000 of gain ($500,000 for joint filers) is excluded. Keep records of improvements and selling costs to lower any gain above that.
Can I sell my house without paying capital gains tax?
Yes, if your gain is under the exclusion and you pass the ownership and use tests. Many sellers owe nothing, but you may still need to report the sale.
Can you avoid capital gains by buying another home?
Not for a main home. The exclusion is what applies. A 1031 exchange only defers gain on investment or business property.
What counts as a capital improvement?
Things that add value or extend the home’s life, such as an addition, a new roof, central air, a furnace, a fence or a pool. Routine repairs generally don’t count.
What if I lived there less than 2 years?
You may get a partial exclusion if you sold because of a job move, a health issue or an unforeseeable event. IRS Publication 523 explains the math.
Do I pay capital gains on an inherited house?
Your basis is usually the value on the date of death. If you sell soon after, the gain is often small.
Tax figures come from IRS Topic 701, Topic 409 (2025 brackets) and Publication 523, read October 22, 2026. Brackets change each year. The worked examples are illustrations, not a forecast of your tax. State taxes are not covered. This is general information, not tax or legal advice; ask a tax professional about your sale.
Beycome prices as of October 2026. “$0 at closing” means no Beycome fee at closing; other closing costs, taxes and any buyer-agent compensation you agree to still apply. Concierge lists at $1,399 and is offered at $999 for a limited time. Buyer program credit: Beycome keeps 1% of the price (minimum $1,499); the credit needs lender approval. Commissions are negotiable and not set by law or NAR rules.
Sources
- IRS Topic 701, Sale of your home, read October 22, 2026.
- IRS Topic 409, Capital gains and losses, read October 22, 2026.
- IRS Publication 523, Selling Your Home, read October 22, 2026.
- IRS, Like-kind exchanges, real estate tax tips, read October 22, 2026.
- NAR, What the NAR settlement means for buyers and sellers, read October 22, 2026.
- Beycome, listing package features, October 2026.
Disclosure & Disclaimer
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