In this week’s Tuesday Tip video, learn the hidden tax consequences of selling your family home. Please watch the video below to learn more.
There are many other factors to consider when thinking about relocation beyond taxes, including the following:
- How Do You Decide Where to Live When You Retire
- Retirement Reimagined: Navigating New Beginnings Without Relocation
- Navigating Homeownership Alone: Can You Afford Your House Without Your Spouse?
If you would like a free review of your current financial situation, please use this link to schedule a free call. You can find an edited transcript below the video.
This week I’d like to discuss the hidden tax consequences of selling your family home. Selling your family home can be an emotional and exciting milestone. Maybe the kids have moved out, and you’re ready to downsize. Or perhaps you’re stepping into a new chapter—you’ve lost a loved one, you’ve recently separated from your spouse, you want to be closer to family, somewhere warmer, or move somewhere that feels more like “you.”
However, before you put up that “For Sale” sign, it’s essential to understand the hidden tax consequences that can come with the sale of your home—especially when it comes to capital gains, exclusions, and timing.
Let’s break things down together.
When you sell your home, the IRS wants to know your gain—the difference between what you paid for the home and what you sell it for, after adjusting for improvements, selling costs, and more.
This is called a capital gain.
Now here’s the good news:
If the home was your primary residence and you’ve lived there for at least two of the last five years, you may be able to exclude up to $250,000 of that gain from taxes if you’re single—or $500,000 if you’re married filing jointly.
That’s a generous exclusion—but it’s not automatic. And it doesn’t cover every situation.
Here are a few hidden pitfalls we often see:
You didn’t live in the home for two of the last five years.
Maybe you moved out early or rented it out for a while. That could impact your ability to claim the full exclusion.
You’ve used the exclusion too recently.
The IRS only allows this exclusion once every two years. If you’ve sold another home recently, you might not qualify.
You inherited the home.
In this case, your gain is calculated differently—based on the home’s value at the time the previous owner passed away. You may not receive the full exclusion, but you might benefit from a step-up in your cost basis.
Another factor? Timing.
If you’re nearing the two-year mark in your home, it may be wise to wait a bit longer before selling.
And if you’re married and one spouse hasn’t yet met the residency requirement, a little patience could help you qualify for the full $500,000 exclusion.
Additionally, consider the tax year—selling in December versus January can impact when the gain is reported and how it aligns with your other income.
Say you bought your home 20 years ago for $300,000, and you’re selling it today for $900,000. Congratulations! You have a $600,000 gain.
You and your spouse qualify for the $500,000 exclusion—so you’d only owe capital gains tax on $100,000.
But if you’ve already used the exclusion on another home recently—or don’t meet the ownership and use tests—you could be taxed on the full $600,000 gain instead.
That’s a big difference—and potentially a big tax bill.
Every situation is unique. A trusted advisor can help you understand your total picture—home improvements, prior exclusions, potential tax strategies—and help you decide when and how to sell your home in the most tax-efficient way.
And remember, tax laws change. What was applicable five years ago might not be the case today. It’s worth checking in before you make a move.
Selling your home isn’t just a financial decision—it’s often a deeply personal one. As discussed in this video, you want to know the hidden tax consequences of selling your family home, as they can impact the decisions you make during the sales process.
If you’re considering a move or facing a new beginning, we’re here to help you plan thoughtfully—so you can move forward with clarity and confidence.
Thanks for watching. I’ll be back again next week with Apprise’s Five Favorite Reads of the Week.
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