Putting a house on the market this spring and anticipating a windfall?

You’re not alone. With soaring home values nationwide, many homeowners can expect a tidy profit from selling their home—well into the hundreds of thousands of dollars, depending on location and length of time in the home.

With profits such as these, will taxes take a huge bite from proceeds?

Not necessarily.

Hitting New Highs

In the last 10 years, median home values across the country have increased about 100%. 1

Some cities, such as Portland, have seen even greater appreciation. A decade ago, the median home value in the Rose City was about $225,000. Today it’s about $550,000—an increase of almost 145%, with prices projected to increase even more in the next year.1

When it comes to real estate values—and potentially huge profits for sellers—the western states rank high. According to Zillow, Hawaii has the highest median home price nationwide, with California, Massachusetts, Colorado, and Washington rounding out the top five. Oregon ranks number nine.

With values such as these, sellers may be concerned about capital gains taxes, which can rise above 30%, depending on your state and income level.

Exclusions to the Rescue?

Fortunately, IRS exclusions often mitigate the lion’s share of capital gains. Single filers can exclude up to $250,000, and married couples filing jointly can exclude up to $500,000 of profit from the sale of a home.

There are rules around these exclusions, however:

  • To qualify, the home must have been a primary residence two of the last five years, though the years do not need to be consecutive.
  • This requirement is reduced to one year for a person who has become physically or mentally unable to care for themselves. Time spent living in a nursing home or other health care facility counts toward this one-year requirement.
  • Snowbirds or those who alternate between two residences can only designate one property at a time as a principal residence (usually the one listed on the homeowner’s tax return).
  • Homeowners can take the capital gains exclusion only once every two years.

It’s worth noting partial exclusions—prorated by the number of days spent in a home—are available for a variety of reasons, such as a change in workplace location, health issues, or “unforeseen events” like divorce, the birth of twins or triplets, or a change in employment status.

When Profits Outstrip Tax Thresholds

But what happens when proceeds from the sale of a home exceed IRS thresholds?

Sellers must calculate their taxable gain, which is the home’s sale price, less selling costs, tax basis (more about that soon), deductible closing costs, and the IRS exemption.

Calculating a home’s tax basis can be quite complex. Many home improvements, such as additions, landscaping, and a new roof can increase basis. But there are many exceptions, such as maintenance (painting, fixing leaks) that keeps a home in good condition but doesn’t add to a home’s basis.

If you ever depreciated your home on your taxes (say it was a rental property at one point), depreciation recapture also needs to be taken into account when determining your taxable gain.

Homeowners who anticipate a large profit from the sale of a home can refer to this publication or consult with a tax preparer to determine tax basis—and potentially lower their taxable gain.

Planning Ahead

As we enter peak selling season, we encourage you to consult with your Vista team if you have questions or concerns about putting your home on the market. We’re happy to talk through ways to minimize taxes, and we can connect you with a qualified tax professional.

If you’re further along in the process, we recommend you obtain and provide accurate tax basis for your home to the closing agent (realtor, title company, escrow company) who will prepare tax form 1099-S. This will help you avoid filing headaches next tax season.


 1 Than Merrill. “Portland Housing Market: Prices, Trends & Forecasts 2022.” FortuneBuilders. Found at Portland Housing Market: Prices, Trends & Forecasts 2022 (fortunebuilders.com).