Capital Gains and Selling Your Home

Real Estate Agent with Compass

The best tax break available to the public is for homeowners when they sell their home.

tax exclusion


I was speaking recently with a savvy business person and buyer who was surprised when I told him he had an automatic $250,000 capital gain exemption on the sale of his apartment and if married eligible for a $500,000 capital gain exclusion on the sale of their primary residence. 


I'm surprised every homeowner and buyer doesn't know this. Many home owners still believe they have to purchase another home to receive a tax benefit.


All that changed in 1997. One of my first blog posts back in 2006 was titled 1997 tax-reform-great-for-real-estate-

The Taxpayer Relief Act of 1997 - signed into law by President Bill Clinton together with the Balanced Budget Act of 1997 is probably the most significant change in recent times affecting real estate. This law made some major improvements for Home Sellers, Property Owners and First Time Home Buyers. It simplified taxes for 99% of Homes sold in the U.S.

Since 1997 Home sellers are eligible to exclude up to $250,000 if single or up to $500,000 if marriedof the capital gain on the sale of the residence. In order to be able to claim the entire exclusion, the home seller must have owned and resided in his or her home for at least two years of the last five years prior to the sale of the residence. If eligible for the inclusion, it may be claimed once every two years. 

If the home was sold because of a change in employment, health, or other unforeseen circumstance, the home seller may be eligible to claim a partial exclusion of capital gains even if he or she didn't live in the home for a total of two years of the last five before the sale. The portion of the partial exclusion is calculated based on how long the seller lived in and owned the home. The exclusion relates to the gain only, not the gross sale price. Broker's commission is deducted from the gross sale price as is capital improvements and closing costs.

Prior to the Taxpayer Relief Act of 1997 the tax law allowed rollover that required reinvestment in a home of greater or equal value. The previous law also allowed a one-time capital gain exclusion of $125,000 for taxpayers over age 55 who sold their homes. This tax reform enabled many to keep much of their wealth that they accumulated from the sale of their homes.


The 1997 tax reform law also allows early withdrawals from Ira's without penalties of up to $10,000 for First Time Home buyers. The law defines first time home buyers as any one who has not owned a home for the past two years. The cap gain tax was also lowered from maximum 28% to maximum 20%. 

The Taxpayer Relief Act of 1997 has helped many sellers. Many who did not have to wait until age 55 to get an exclusion. 
This same 1997 Tax Reform law also helped to revitalize distressed urban areas by creating empowerment zones. The creation of urban empowerment zones to promote business development. 


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  1. Rosemarie Heindel 04/08/2015 08:34 AM
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Paul Eastwood
Buying Buddy IDX CRM Suite - Littleton, CO
Buying Buddy IDX CRM

Very useful information. Thanks Mitchell!

Apr 08, 2015 04:12 AM #1
Anna Banana Kruchten CRB, CRS 602-380-4886
Phoenix Property Shoppe - Phoenix, AZ
Arizona's Top Banana!

Mitchell there is indeed a lot of mis-information about captitol gains on the sale of ones homes. Great post!

Apr 08, 2015 04:32 AM #2
Ed Silva
RE/MAX Professionals, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

That has not been a big issue in the past few years as so few people had extra equity upon completion of the sale

Apr 08, 2015 04:45 AM #3
Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

Mitch, OK.  I need a marriage of convenience to sell my house.  I've been here for over 30 years.  I'll owe enough to pay the national debt.

Apr 08, 2015 09:12 AM #4
Mitchell J Hall
Compass - Manhattan, NY
Lic Associate RE Broker - Manhattan & Brooklyn

Thanks Paul

Anna, Thanks, It is much simpler and less complicated than many home owners know.

Ed, Good point but now long term home owners are seeing equity again. Hope it lasts.

Pat, Lol. it's good and bad. I hear you. I just came back from session with my accountant. 

Apr 08, 2015 09:27 AM #5
Debbie Gartner
The Flooring Girl - White Plains, NY
The Flooring Girl & Blog Stylist -Dynamo Marketers

Oh yes, I explain this to many of my new home buyers.  Importantly, all their capital improvement costs also add to the deduction.

Apr 08, 2015 09:57 PM #6
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

For those entering into this subject...this remains very useful. Good job here

Apr 09, 2015 12:36 AM #7
Mitchell J Hall
Compass - Manhattan, NY
Lic Associate RE Broker - Manhattan & Brooklyn

Debbie, Great point. Keep receipts.

Richie, Thanks. It's that time of year.

Apr 09, 2015 10:26 AM #8
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

Mitchell - I wasn't aware of the partial excusion if people had the right reason.

Apr 09, 2015 03:21 PM #9
Jim Paulson
Progressive Realty (Boise Idaho) - Boise, ID

I thought it was 3 years without owning a home to qualify as a "first time home buyer" not just 2?  

Great post.

Apr 10, 2015 01:20 AM #10
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Mitchell J Hall

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