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July 26, 2021

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What You Need to Know About Real Estate Capital Gains

Aaron Evans Aaron Evans | Articles

Read Time: 2:00 min


Many real estate capital gains will qualify for a tax exemption, but before you sell its important to understand the requirements. 

It doesn’t take much to see that the real estate market has continued to flourish as the pandemic has subsided.  If your frequent web traffic includes sites like, or if you’ve simply driven around your neighborhood, words like “Pending”, “Under Contract” and “Sold” are popping up everywhere. Low interest rates, consumers increasingly focused on home/work life and the prospect of renting/flipping have properties selling fast and at dramatically increased prices.    

Selling a home comes with a host of issues to tackle, checklists to cross off and expenses to pay. While those may keep you busy, one item that you may not have to worry about is paying tax on the appreciation of your property value. Many real estate capital gains will qualify for a tax exemption, but before you sell its important to understand the requirements. 


Do you own your home? 

First things first; you must own the home you are selling to qualify for a capital gains tax exemption.  Specifically, you must have owned your home for more than two out of the five years leading up to the sale date.  

Is the home your Primary Residence? 

Only primary homes are considered for capital gains tax exemption.  A primary home is one that you have lived in for two out of the last five years (six months or more per year).  It also should be where you receive mail and what’s listed on your ID.  Secondary homes likely fall under the same capital gains rules as stock transactions where long/short-term gain tax rates depend on length of ownership (greater or less than one year). Sale of rental properties may have increased complexity and should always be reviewed with a tax professional.   

Have you done this before? 

You can only utilize the exemption once every two years. If you are a frequent seller or had a short stint in a home where you already used an exemption, you may not qualify. 

Passed the Tests, Now What?

If you meet the requirements above, single tax filers can qualify for an exemption of up to $250,000 in gains, while married couples can get a combined exemption of up to $500,000.    

Example: A married couple purchased a home for $225,000 and over a five-year period invested an additional $200,000 into the home.   In the current market they were able to get $800,000 at sale.  The gain ($375,000) is below the $500,000 combined exemption; thus no capital gains taxes are due.    

For couples, both spouses must individually meet the requirements to qualify for the full $500,000.   It’s also important to note that both the original purchase and any investment into the property make up the “basis” for purpose of calculating a gain, so keep records/receipts of your home improvements.   

It is always a smart decision to consult with a tax professional to ensure you’ve covered all your bases.  


This material does not constitute the advice or recommendation of Strategic Financial services, and should not be used as the basis upon which to make an investment or financial decisions. Strategic Financial Services provides advice and makes recommendations based on the specific needs and circumstances of each client. This material is not intended to provide professional tax or legal advice, which should be obtained from certified tax professionals and licensed attorneys.   

About Strategic

Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on client assets of over $1.8 billion.