Short Answer
If you have lived in your home for at least two of the past five years, you can exclude up to $250,000 of capital gains ($500,000 for married couples filing jointly) from your taxable income. If you have not lived in the home long enough, or if your gain exceeds these limits, you may owe capital gains tax. Other tax considerations include property tax prorations, transfer taxes, and the impact of home improvements on your cost basis. Consult a tax professional for personalized advice.
The tax implications of selling your home depend on several factors. The primary residence exclusion allows you to exclude up to $250,000 of capital gains ($500,000 for married couples) if you have owned and lived in the home for at least two of the past five years. This exclusion applies to most home sales, so most sellers do not pay federal capital gains tax. If your gain exceeds the exclusion limits, or if you have not met the two-year requirement, you may owe long-term capital gains tax, which is typically 15% to 20% depending on your income bracket. You can reduce your taxable gain by adding the cost of home improvements to your cost basis. Improvements that add value or extend the life of the home, such as a new roof, kitchen remodel, or addition, can be added to your basis. Repairs and maintenance do not count. You may also be subject to the Net Investment Income Tax of 3.8% if your income exceeds certain thresholds. New Jersey does not tax capital gains on the sale of a primary residence, but you will pay state transfer taxes at closing. Keep records of all home improvements for tax purposes.
Bob's Advice
Redfin Senior Agent · AI Certified Agent
Tax rules can be complicated, and they change over time. I always recommend consulting with a CPA or tax professional to understand how the sale of your home will affect your tax situation. I can refer you to trusted tax professionals who understand New Jersey real estate. The good news is that most homeowners do not pay capital gains tax on the sale of their primary residence. The exclusion is generous, but it is important to understand the rules before you sell.
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