{"id":18844,"date":"2026-02-20T04:19:32","date_gmt":"2026-02-20T12:19:32","guid":{"rendered":"https:\/\/www.homelight.com\/blog\/?p=18844"},"modified":"2026-02-23T19:55:46","modified_gmt":"2026-02-24T03:55:46","slug":"how-to-avoid-paying-taxes-when-selling-house","status":"publish","type":"post","link":"https:\/\/www.homelight.com\/blog\/how-to-avoid-paying-taxes-when-selling-house\/","title":{"rendered":"How to Avoid (Or Reduce) Your Taxes When Selling a House"},"content":{"rendered":"

Working. Shopping. Eating out. Getting gas. You pay taxes on so many things, it makes sense to want a break on paying taxes when selling your biggest asset: your home.<\/p>\n

You\u2019ve come to the right place if you\u2019re wondering how to avoid paying taxes when selling a house. We\u2019ve talked to a top real estate agent and a tax professional to help you understand the required home sale taxes<\/a> and gathered the top ways to mitigate or eliminate the tax burden on your home sale.<\/p>\n\n\n\n\n\n

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Connect with a Top Agent to Help Maximize Value<\/h3>\n

Even rockstar agents can’t make your tax liability disappear, but HomeLight data shows that the top 5% of agents across the U.S. help clients sell their home for as much as 10% more than the average real estate agent, helping offset the tax bill.<\/p>\n \n

\n Find Agent<\/a>\n <\/div>\n <\/div>\n<\/div>\n\n\n
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Capital gains in real estate, explained<\/h2>\n

If you sell your house for more than you bought it for, you\u2019re making a profit. The government considers that profit taxable in the form of capital gains<\/a>. Just be aware that capital gains tax is calculated based on the gross profit, not the net.<\/p>\n

Experienced CPA Robin F. Sansone<\/a>, partner at Georgia-based Rhodes, Young, Black & Duncan, explains:<\/p>\n

\u201cIf you sell your home for $200,000 and $50,000 of that sales price is used to pay off the existing mortgage and another $20,000 is used for closing costs, you may only receive cash of $130,000 at closing. However, you calculate your gain based upon the $200,000 sales price, NOT the cash received of $130,000.\u201d<\/p>\n

How the IRS decides to tax the capital gains from your home sale is based on whether or not your capital gains are<\/span> long term or short term<\/span><\/a>. This separates the average homeowner (who\u2019s selling a house for reasons like upgrading, <\/span>downsizing<\/span><\/a>, or <\/span>relocating<\/span><\/a>) from the investor (who is buying and selling a number of homes annually for a profit \u2014 which qualifies the home sale proceeds as ordinary income).<\/span><\/p>\n

Long-term capital gains tax rates are typically 15%<\/a> for the average individual but can be as low as 0% or as high as 20%, depending on your income. These long-term rates are generally lower than the standard income tax rates. And of course, only the gain (the amount you sold your house for above<\/em> the amount you bought your house for) is taxed.<\/p>\n

Short-term capital gains are taxed as ordinary income, so the rate varies based on your annual income<\/a>.<\/p>\n

The opportunities available for lowering or avoiding taxes on your home sale depend on whether or not you\u2019re a homeowner selling a primary residence (plus factors like how long you\u2019ve lived there) or an investor selling an investment property.<\/p>\n

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How to avoid taxes on your primary residence<\/h2>\n

Fortunately, most home sellers won\u2019t be taxed on every single dollar of profit made from their home sale. That\u2019s because most primary residence sellers meet the guidelines to qualify for the capital gains tax exemption<\/a>.<\/p>\n

Thanks to the Taxpayer Relief Act of 1997<\/a>, most home sellers qualify for the Section 121 exclusion<\/a> that exempts home sale profits from capital gains taxes. East Wenatchee, Washington-based real estate agent Perrin Cornell<\/a> explains:<\/p>\n

\u201cWhen selling a residence, a single homeowner gets a $250,000 capital gains tax exemption and a couple gets a $500,000 exemption. For example, if a single person with a $100,000 mortgage sells a home worth $300,000, they have a capital gain of $200,000. With that $250,000 exemption, they\u2019ll have no taxable gain at all.\u201d<\/p>\n

This exemption isn\u2019t automatic, though. You\u2019ll have to qualify based on two tests \u2014 ownership and use. According to the IRS, you must:<\/p>\n

1. Own the home and live in it as your primary residence for at least two non-consecutive years out of the five-year period prior to the date of sale.<\/h3>\n

CPA Sansone recalls a client who qualified for this exemption even though the home she was selling was no longer her primary residence:<\/p>\n

\u201cI had a client who is single and living in Georgia. While her kids were in college in Georgia, she moved to a home in Florida but kept the Georgia home for her kids to live in while in school. After two years, she decided to sell the Georgia home. Even though she no longer lived in the home, she had lived there for at least two of the previous five years. Therefore, she was allowed to take the $250,000 exclusion on the sale.\u201d<\/p>\n

2. Wait at least two years before claiming the exemption between sales of a primary residence.<\/h3>\n

You can\u2019t always get this exemption just because you are selling your primary residence. This exemption is only allowable once every two years. If you claimed it for another property the 24 months preceding your current sale, you won\u2019t be able to do so on a second property to avoid capital gains.<\/p>\n

And expect the IRS to be unforgiving about the two-year minimum: \u201c[Another] client owned their property for one year, nine months, and three weeks, so he couldn\u2019t get the capital gains tax exemption,\u201d recalls Cornell.<\/p>\n

3. Reduce your capital gain by deducting the cost of capital improvements from the home sale proceeds.<\/h3>\n

In order for a home improvement to qualify as a capital improvement<\/a>, it must meet these three qualifications:<\/p>\n