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Capital gains tax implications of selling a home
The biggest question at tax time for someone who recently sold a home is whether they’ll have to pay federal capital gains taxes on the profit. Capital gains are the amount of money you make from selling capital assets, high-value items, such as homes, cars, and investments.
Home prices have increased dramatically in recent years. Therefore, many homeowners looking to sell in 2026 will have experienced significant capital gains since their home purchase, especially if they’ve owned their home for more than three years.
For tax year 2026, the IRS announced some rule changes on capital gains. The tax rates remain the same, but the income thresholds for those rates are moving slightly higher, with an approximate 4% increase from 2025 levels.
For insight into capital gains taxes for home sellers, we consulted Logan Allec, a CPA and founder of tax relief company Choice Tax Relief, and personal finance blog Money Done Right.
According to Allec, if you sold a home last year, you may receive a 1099-S in the mail from the escrow company. “The thing to keep in mind is that the number on that 1099-S is not necessarily taxable,” Allec adds. “For one thing, the amount on that form is the gross proceeds, not net proceeds.”
Calculating basis
To determine net proceeds, Allec says people must take time to calculate the basis of their home. The basis is tax-speak for what your home has cost you, and despite what you might think, it’s not just the purchase price.
“Your basis is probably actually more than that,” Allec explains. “Escrow fees, recording fees, appraisal fees — all that stuff, you can add to your basis in your home.” In other words, make sure you account for all the costs associated with selling your home when you’re calculating net profit.
You should also consider the costs of major or “capital” improvements you made to your home, but keep in mind that simple repairs and maintenance don’t necessarily increase the basis.
Allec says, “If something broke in your home, like some fixture or something, and you’re just returning it to its original condition, you can’t count that. But let’s say you add a whole new bedroom — that adds to your basis.”
For examples of more improvements that add to your home’s basis, check out page 10 of IRS Publication 523.
Another way to make sure you don’t overestimate your profit from the home sale is to take into account all the selling expenses, as well. Make sure you subtract from your net profit things like the real estate broker’s commission and any other closing costs you paid.
