{"id":106064,"date":"2025-09-22T16:05:57","date_gmt":"2025-09-22T23:05:57","guid":{"rendered":"https:\/\/www.redfin.com\/blog\/?p=106064"},"modified":"2025-09-22T16:05:57","modified_gmt":"2025-09-22T23:05:57","slug":"capital-gains-taxes-on-real-estate","status":"publish","type":"post","link":"https:\/\/www.redfin.com\/blog\/capital-gains-taxes-on-real-estate\/","title":{"rendered":"Do I Have to Pay Capital Gains If I Sell My House and Buy Another?"},"content":{"rendered":"<h2><b>Key takeaways<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">You don\u2019t automatically owe capital gains tax if you sell your home and buy another.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The primary residence exclusion is the most common way to avoid paying capital gains tax.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Investment properties follow different rules, and you may need a 1031 exchange to defer taxes.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Keeping records of your purchase price, improvements, and selling costs is crucial for lowering your taxable gain.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Selling a home often comes with excitement, but it also raises questions about capital gains taxes. A common question homeowners have is whether they have to pay capital gains if they sell their house and buy another. The answer depends on several factors, including whether the property was your primary residence, how much profit you made, and whether you meet certain IRS requirements.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">This Redfin real estate guide explains what capital gains taxes are, when you may or may not owe them, and strategies for minimizing your tax bill. Whether you\u2019re selling your first <\/span><a href=\"https:\/\/www.redfin.com\/city\/1823\/AL\/Birmingham\" data-wpel-link=\"exclude\"><span style=\"font-weight: 400;\">home in Birmingham, AL<\/span><\/a><span style=\"font-weight: 400;\">, downsizing, or moving into an investment property in <\/span><a href=\"https:\/\/www.redfin.com\/city\/11458\/FL\/Miami\" data-wpel-link=\"exclude\"><span style=\"font-weight: 400;\">Miami, FL<\/span><\/a><span style=\"font-weight: 400;\">, understanding these rules can help you make smart financial decisions.<\/span><\/p>\n<h2><b>What are capital gains taxes?<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">A capital gain is the profit you make when selling an asset \u2013 like stocks, bonds, or real estate- for more than you originally paid. The IRS taxes these profits as capital gains tax. When it comes to real estate:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Short-term capital gains<\/b><span style=\"font-weight: 400;\"> apply if you owned the property for less than a year and are taxed at your ordinary income tax rate.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Long-term capital gains<\/b><span style=\"font-weight: 400;\"> apply if you owned the property for more than a year, with tax rates ranging from 0% to 20% depending on your income bracket.<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">The good news is, if you\u2019re selling your primary residence, you may qualify for a substantial tax exclusion under <\/span><a href=\"https:\/\/www.irs.gov\/pub\/irs-drop\/rr-14-02.pdf\" data-wpel-link=\"external\" target=\"_blank\" rel=\"external noopener noreferrer\"><span style=\"font-weight: 400;\">Section 121<\/span><\/a><span style=\"font-weight: 400;\"> of the tax code. This can dramatically reduce or even eliminate <\/span><a href=\"https:\/\/www.redfin.com\/guides\/tax-implications-of-selling-a-house\" data-wpel-link=\"exclude\"><span style=\"font-weight: 400;\">tax implications<\/span><\/a><span style=\"font-weight: 400;\"> of the sale.<\/span><\/p>\n<h2><b>When you likely will not pay capital gains tax (Section 121 exclusion)<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Under Section 121 of the Internal Revenue Code, homeowners can exclude a significant portion of their profit when selling a <\/span><a href=\"https:\/\/www.redfin.com\/blog\/primary-residence\/\" data-wpel-link=\"exclude\"><span style=\"font-weight: 400;\">primary residence<\/span><\/a><span style=\"font-weight: 400;\">, provided they meet certain ownership and use requirements. If you file your taxes as a single individual, you can exclude up to $250,000 of profit from taxation, and if you are married and file jointly, you can exclude up to $500,000.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">To qualify for this exclusion, you must satisfy both the ownership test and the use test. The ownership test requires that you owned the property for at least two of the five years leading up to the sale, while the use test requires that you lived in the home as your primary residence for at least two of those five years. You can only claim this exclusion once every two years, which means timing your sales matters.<\/span><\/p>\n<h3><b>Types of homes eligible for the exclusion<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">The exclusion doesn\u2019t just apply to traditional houses. It also covers:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Condos<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Mobile homes<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Trailers<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Houseboats<\/span><\/li>\n<\/ul>\n<p><b>Example:<\/b><span style=\"font-weight: 400;\"> If you\u2019re a single filer who sells a home for a $200,000 profit, and you meet both the ownership and use tests, you will not owe any capital gains tax.<\/span><\/p>\n<h2><b>When you may need to pay capital gains tax<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">While the Section 121 exclusion is generous, there are scenarios where you may still owe taxes:<\/span><\/p>\n<ol>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Investment or second home<\/b>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">The exclusion only applies to your primary residence. Selling a rental property, vacation home, or second house generally means you\u2019ll owe capital gains tax.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Gain exceeds exclusion<\/b>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">If your profit is more than $250,000 (single) or $500,000 (married filing jointly), you must pay taxes on the amount above the threshold.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Failing the ownership or use test<\/b>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">It\u2019s important to consider <\/span><a href=\"https:\/\/www.redfin.com\/blog\/selling-a-house-after-two-years\/\" data-wpel-link=\"exclude\"><span style=\"font-weight: 400;\">living in your home for two years<\/span><\/a><span style=\"font-weight: 400;\"> before selling. If you haven\u2019t lived in the property for at least two out of the past five years, you won\u2019t qualify for the exclusion.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Selling rental property to pay off primary residence<\/b>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Selling a rental property may free up cash to pay off your primary home mortgage, but the sale itself will likely trigger capital gains tax.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ol>\n<h2><b>What about a 1031 exchange?<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Many homeowners hear about the idea of \u201crolling\u201d capital gains into another property and assume it applies to them. In reality, this refers to a 1031 exchange, which allows investors to defer capital gains tax by reinvesting the proceeds from one property into another \u201clike-kind\u201d<\/span> <span style=\"font-weight: 400;\">property. However, this only applies to investment or <\/span><a href=\"https:\/\/www.redfin.com\/blog\/how-to-set-up-your-home-as-a-rental-property\/\" data-wpel-link=\"exclude\"><span style=\"font-weight: 400;\">rental properties<\/span><\/a><span style=\"font-weight: 400;\">, not your primary residence.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For example, if you own a rental home and want to sell it and purchase another rental, a properly executed 1031 exchange lets you defer taxes. But if you\u2019re selling your personal home to buy another one, this rule does not apply.<\/span><\/p>\n<h2><b>How to calculate your gain<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Before you can determine whether you owe capital gains tax, you need to calculate your net profit. Here\u2019s a step-by-step breakdown:<\/span><\/p>\n<ol>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Start with your home\u2019s sale price.<\/b><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Subtract your basis<\/b><span style=\"font-weight: 400;\">, which includes the total of your:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Original purchase price<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Major <\/span><a href=\"https:\/\/www.redfin.com\/blog\/home-improvement-projects-that-add-value\/\" data-wpel-link=\"exclude\"><span style=\"font-weight: 400;\">home improvements<\/span><\/a><span style=\"font-weight: 400;\"> (renovations, additions, energy-efficient upgrades)<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Subtract selling costs<\/b><span style=\"font-weight: 400;\"> such as:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Real estate agent commissions<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Closing costs<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Title fees<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Apply the exclusion<\/b><span style=\"font-weight: 400;\"> ($250,000 or $500,000).<\/span><\/li>\n<\/ol>\n<p><span style=\"font-weight: 400;\">The final number is your taxable capital gain. However, for long-term home owners, another important consideration involves how to adjust your cost basis if you postponed gains under the old rollover rule. Before 1997, homeowners could use IRS Form 2119, Sale of Your Home, to defer paying capital gains tax by applying the profit from one home sale toward the purchase of another. If you used this form in the past, the deferred gain was subtracted from your basis in the new home, which reduces your overall cost basis.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">When you sell that property today, the postponed gains must be accounted for, which can increase your taxable profit. For example, if you rolled over $40,000 in gains into your new home decades ago, your cost basis is effectively reduced by that amount, meaning your current taxable gain will be larger. This adjustment is critical for homeowners who owned their properties long before the rules changed and need to correctly calculate what they owe.<\/span><\/p>\n<h2><b>Other ways to minimize capital gains tax<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Even if you don\u2019t qualify for the full exclusion, there are additional strategies for <\/span><a href=\"https:\/\/www.redfin.com\/blog\/tax-tips-for-home-sellers\/\" data-wpel-link=\"exclude\"><span style=\"font-weight: 400;\">reducing your tax bill<\/span><\/a><span style=\"font-weight: 400;\">:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Meet the 2-year ownership and use tests<\/b><span style=\"font-weight: 400;\"> before selling.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Exceptions:<\/b><span style=\"font-weight: 400;\"> The IRS allows partial exclusions in cases of:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Job relocation<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Health-related moves<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Unforeseen circumstances<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Government workers:<\/b><span style=\"font-weight: 400;\"> Certain federal employees and military members may qualify for extended residency exceptions.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Write off home improvements:<\/b><span style=\"font-weight: 400;\"> Keep records of capital improvements, as these increase your home\u2019s cost basis and reduce taxable gains.<\/span><\/li>\n<\/ul>\n<h2><b>Frequently asked questions about capital gains taxes<\/b><\/h2>\n<h3><b>1. Can you avoid capital gains if you buy another house?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">No. The old rollover rule (which allowed reinvesting profits into another home) ended in 1997. Today, you must meet the ownership and use tests for your primary residence to qualify for the exclusion.<\/span><\/p>\n<h3><b>2. What is the 2-year, 5-year rule?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">You must have owned and lived in the home for at least two years during the five years leading up to the sale.<\/span><\/p>\n<h3><b>3. Do you pay capital gains tax when you sell a house and buy a new one?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">Not automatically. If you qualify for the Section 121 exclusion, you may owe nothing. But if it\u2019s an investment property or your gain exceeds the limit, you\u2019ll likely owe taxes.<\/span><\/p>\n<h3><b>4. How long do you have when you sell a house to avoid capital gains?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">There\u2019s no grace period to \u201cavoid\u201d capital gains by buying another house. Instead, you must meet the IRS rules for exclusion.<\/span><\/p>\n<h3><b>5. What happens if I sell my house and don\u2019t buy another?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">You don\u2019t need to buy another home to qualify for the exclusion. If you meet the residency tests, you may still avoid taxes.<\/span><\/p>\n<h3><b>6. Is there a one-time capital gains exemption?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">There used to be a one-time exemption for homeowners over age 55, but it was replaced by the current Section 121 exclusion.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Selling your home? Find out when capital gains taxes apply, how exclusions work, and strategies to lower what you owe the IRS.<\/p>\n","protected":false},"author":807,"featured_media":106069,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"default","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"set","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[34279],"tags":[34622],"coauthors":[36339],"class_list":["post-106064","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-selling-a-home","tag-home-selling-tips"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v24.7 (Yoast SEO v27.9) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Is Your Home Sale Eligible for Capital Gains Exclusion? | Redfin<\/title>\n<meta name=\"description\" content=\"Learn if you must pay capital gains when selling a house and buying another, plus IRS rules, exclusions, and ways to reduce tax.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.redfin.com\/blog\/capital-gains-taxes-on-real-estate\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Do I Have to Pay Capital Gains If I Sell My House and Buy Another?\" \/>\n<meta property=\"og:description\" content=\"Learn if you must pay capital gains when selling a house and buying another, plus IRS rules, exclusions, and ways to reduce tax.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.redfin.com\/blog\/capital-gains-taxes-on-real-estate\/\" \/>\n<meta property=\"og:site_name\" content=\"Redfin | Real Estate Tips for Home Buying, Selling &amp; More\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/redfin\" \/>\n<meta property=\"article:published_time\" content=\"2025-09-22T23:05:57+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.redfin.com\/blog\/wp-content\/uploads\/2025\/09\/Capital-Gains-Real-Estate.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1200\" \/>\n\t<meta property=\"og:image:height\" content=\"801\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Cam Hayes\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@redfin\" \/>\n<meta name=\"twitter:site\" content=\"@redfin\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Cam Hayes\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"7 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/www.redfin.com/blog\\\/capital-gains-taxes-on-real-estate\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/www.redfin.com/blog\\\/capital-gains-taxes-on-real-estate\\\/\"},\"author\":{\"name\":\"Cam Hayes\",\"@id\":\"https:\\\/\\\/www.redfin.com/blog\\\/#\\\/schema\\\/person\\\/f68abe568285c62a5755a8ef28f84293\"},\"headline\":\"Do I Have to Pay Capital Gains If I Sell My House and Buy Another?\",\"datePublished\":\"2025-09-22T23:05:57+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/www.redfin.com/blog\\\/capital-gains-taxes-on-real-estate\\\/\"},\"wordCount\":1328,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\\\/\\\/www.redfin.com/blog\\\/#organization\"},\"image\":{\"@id\":\"https:\\\/\\\/www.redfin.com/blog\\\/capital-gains-taxes-on-real-estate\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/www.redfin.com/blog\\\/wp-content\\\/uploads\\\/2025\\\/09\\\/Capital-Gains-Real-Estate.jpg\",\"keywords\":[\"home selling tips\"],\"articleSection\":[\"Selling a Home\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\\\/\\\/www.redfin.com/blog\\\/capital-gains-taxes-on-real-estate\\\/#respond\"]}],\"copyrightYear\":\"2025\",\"copyrightHolder\":{\"@id\":\"https:\\\/\\\/www.redfin.com/blog\\\/#organization\"}},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/www.redfin.com/blog\\\/capital-gains-taxes-on-real-estate\\\/\",\"url\":\"https:\\\/\\\/www.redfin.com/blog\\\/capital-gains-taxes-on-real-estate\\\/\",\"name\":\"Is Your Home Sale Eligible for Capital Gains Exclusion? 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