Can You Explain the Capital Gains Exclusion for a Primary Residence in Simple Terms?

By Georgina Patterson | Your Real Estate Connection

When you sell the home you live in, the profit you make is called a capital gain.

For example, if you bought your home for $400,000 and later sold it for $1,200,000, your gain would be $800,000 before deductions and exclusions.

The good news is that the IRS allows homeowners to exclude part of that gain from taxes when selling their primary residence. This is called the capital gains exclusion.

For a primary residence, you may be able to exclude:

Up to $250,000 of gain if you are single

Up to $500,000 of gain if you are married filing jointly

This means that portion of your profit is not taxed.

To qualify, you generally need to have lived in the home for at least 2 of the last 5 years before selling it.

For example, let’s say a married couple bought their home for $400,000 in 1990 and sold it for $1,200,000 in 2026. Their gain would be $800,000. If they qualify for the $500,000 exclusion, they would only be taxed on the remaining $300,000 gain.

This can make a big difference, especially in areas like Marin County and throughout California, where many homeowners have seen their property values increase significantly over the years.

Another important thing to remember is to keep records of home improvements and selling expenses. Remodeling receipts, escrow fees, inspection fees, deep cleaning, and real estate professional fees may help reduce the taxable gain. It is also helpful to scan receipts so they stay readable over time.

If the property has been used as a rental, the rules can be different. A 1031 exchange may apply to rental property, but not to the primary home you live in.

Capital gains rules can be very helpful, but they can also be complex depending on your situation. Before selling, it is always best to speak with a qualified tax professional so you can understand your options and plan ahead.

Georgina Patterson is a French-American real estate professional helping buyers and sellers in Sausalito, Marin County. With a background in tax preparation as an Enrolled Agent, she helps clients better understand both the lifestyle and financial side of homeownership. Georgina is fluent in both French and English, allowing her to effectively serve international clients.

Georgina Patterson Realtor®️, DRE #02104684

📞 415.342.6794

✉️ Georgina.Patterson@kw.com  

🌐 GeorginaTheHomeFinder.com

Georgina would be happy to walk you through the relocation process and help you feel more confident about moving to Marin County.