How much capital gains tax do I pay on the sale of my home?

If the home was your primary residence for at least 2 of the last 5 years, the IRS Section 121 exclusion lets you exclude up to $250,000 of gain (single) or $500,000 (married filing jointly). Anything above that is taxed at long-term capital gains rates (0%, 15%, or 20%) based on your taxable income.

How do I calculate the adjusted cost basis of my home?

Adjusted cost basis = original purchase price + closing costs paid at purchase + capital improvements (new roof, addition, kitchen remodel) − any depreciation taken (e.g. home office or rental use). Routine repairs do not count.

What selling expenses can I deduct?

Real estate agent commissions, title and escrow fees, transfer taxes, recording fees, attorney fees, and required staging or repairs negotiated in the contract. These reduce your amount realized and therefore your taxable gain.

Do I have to pay capital gains tax if I reinvest in another house?

Not for a primary residence — the old 'rollover' rule was replaced by the Section 121 exclusion in 1997. Reinvesting in another home is irrelevant to your tax. The 1031 like-kind exchange only applies to investment property, not your personal residence.

What is the 2-out-of-5-year rule?

To claim the full Section 121 exclusion you must have owned the home and used it as your main residence for at least 24 months (cumulative) during the 5 years ending on the sale date. Partial exclusions apply for job, health, or unforeseen-circumstance moves.

Seller guide · 2026

Capital gains tax on a home sale, explained

Most US homeowners pay zero federal capital gains tax when they sell. This guide walks through the IRS Section 121 exclusion, how to calculate your adjusted cost basis, which selling expenses are deductible, and the exact formula behind the RealCalc seller net proceeds calculator.

TL;DR — the 30-second answer

Lived in the home 2 of the last 5 years? You can exclude up to $250,000 of profit if single, or $500,000 if married filing jointly. Only the excess is taxable, at long-term capital gains rates of 0%, 15%, or 20%.

1. The Section 121 exclusion ($250k / $500k)

Internal Revenue Code §121 lets you exclude gain on the sale of your primary residence — the home where you actually live most of the year — provided you meet two tests:

Ownership test: you owned the home for ≥ 2 years out of the last 5.
Use test: you used it as your main residence for ≥ 2 years out of the last 5 (months don't have to be consecutive).

The two windows can overlap and don't have to be the same 2 years. Investment properties, second homes, and short-term flips do not qualify.

Section 121 exclusion amount

Single filer

$250,000

Married filing jointly

$500,000

Profit excluded from federal capital gains tax when ownership + use tests are met.

2. Calculate your adjusted cost basis

Your basis is what the IRS treats as your "investment" in the home. It's not just the purchase price — improvements add to it, and depreciation (if you ever rented part of it out or claimed a home office) reduces it.

Adjusted basis = Purchase price + Purchase closing costs + Capital improvements − Depreciation taken

Capital improvements add value or extend the home's useful life: a new roof, finished basement, addition, full kitchen remodel, HVAC replacement, solar panels, new driveway. Repairs (patching a leak, repainting, replacing a broken appliance) do not count.

Adjusted cost basis — example

Purchase price$450,000
Purchase closing costs$12,000
Capital improvements$60,000
Depreciation taken−$8,000

Adjusted basis$514,000

3. Subtract deductible selling expenses

The price on the contract isn't what you're taxed on — the IRS looks at your amount realized, which is the sale price minus the costs of selling.

Amount realized = Sale price − Selling expenses

Common deductible selling expenses:

Real estate agent commissions (both sides)
Title insurance and escrow / settlement fees
State and local transfer or documentary taxes
Recording fees and attorney fees
Required repairs negotiated into the contract
Reasonable staging costs

Mortgage payoff is not a selling expense — it affects your cash at closing, not your taxable gain.

4. The full formula

Taxable gain = Amount realized − Adjusted basis − Section 121 exclusion

If the result is zero or negative, you owe no federal capital gains tax. If positive, that remainder is taxed at long-term capital gains rates (assuming you owned the home > 1 year, which is almost always true if you meet the §121 use test).

5. Worked example: married couple in California

12-year primary residence, MFJ

Sale price: $1,350,000
− Selling expenses (commission, title, transfer): −$95,000
= Amount realized: $1,255,000
− Adjusted cost basis: −$735,000
= Raw gain: $520,000
− §121 exclusion (MFJ): −$500,000
= Taxable federal gain: $20,000

Despite a $520,000 raw gain, this couple pays zero federal capital gains tax after applying their cost basis, selling expenses, and the §121 exclusion. That's the typical outcome for long-tenured homeowners — even in expensive markets.

6. Long-term capital gains rates (2026)

When some gain is taxable, it's taxed at preferential long-term rates based on your total taxable income — not at your ordinary income rate.

Rate	Single	Married filing jointly
0%	Up to $48,350	Up to $96,700
15%	$48,351 – $533,400	$96,701 – $600,050
20%	Over $533,400	Over $600,050

High earners may also owe a 3.8% Net Investment Income Tax on gains above $200k single / $250k MFJ modified AGI. State capital gains tax (e.g. California up to 13.3%) is separate.

7. Partial exclusions and edge cases

Job, health, or unforeseen move before hitting 2 years: you get a prorated exclusion (e.g. 12 months ÷ 24 months × $250k = $125k for a single filer).
Recently widowed: you can still claim the $500k MFJ exclusion if you sell within 2 years of your spouse's death and otherwise qualified jointly.
Non-qualified use (years it wasn't your primary residence after 2008) reduces the eligible exclusion proportionally.
Inherited home: basis is "stepped up" to fair market value at the date of death — there's often little or no gain when sold soon after.
Loss on sale: a loss on a personal residence is not deductible — only investment-property losses are.

Estimate your net proceeds and tax exposure

The free RealCalc seller calculator pairs with the formula above: start with your gross sale price, factor in commissions, transfer taxes, and the mortgage payoff, then apply the §121 exclusion to see your true after-tax take-home.

Open the seller net proceeds calculator California seller tool

This guide is general education, not tax advice. Confirm any specific situation with a CPA or tax attorney before filing.