Selling Your Home After Decades? What You Need to Know About Capital Gains Taxes Today

If you’ve lived in your home for decades and are thinking about selling, you may wonder how capital gains taxes will affect your profits. In the past, homeowners who sold their primary residence could defer paying capital gains taxes by rolling the proceeds into a new home of equal or greater value. This was a common strategy under the old Section 1034 rollover provision, which allowed sellers to continuously defer gains as long as they reinvested in another home. However, this rule was eliminated in 1997 and replaced with the current capital gains exclusion rule under Section 121 of the tax code.

Under today’s law, homeowners can no longer defer taxes by purchasing another property. Instead, they can exclude up to $250,000 in gains (single filers) or $500,000 (married filing jointly) if they have lived in the home for at least two of the last five years. This means that if your home has significantly appreciated beyond these amounts, you may owe capital gains taxes on the excess. Unlike the old law, the exclusion can be used only once every two years, but it provides more flexibility since homeowners are no longer required to buy another home to benefit from tax relief.

However, given the rapid rise in home values over the last 25 years, some sellers may exceed these exclusions, leading to taxable capital gains. To minimize your tax burden, you can factor in eligible improvements—such as renovations, new roofs, or landscaping—that increase your home’s cost basis and reduce the taxable amount.  Additionally, certain strategies, such as a 1031 exchange (for investment properties) or tax planning with a financial professional, may help you manage or defer taxes. If you’re considering selling,  please consult your tax professional to ensure you maximize your profits while staying compliant with current tax laws.