How Much Are Capital Gains Tax On A House?

How Much Are Capital Gains Tax On A House?

Posted by Clay Schmidt on Dec 16, 2020


Countless investors have sought portfolio diversification -- and potential monthly income -- through residential investment properties.

Residential real estate markets are red hot in many parts of the country, and you might be considering selling a residential property to realize additional capital from your asset’s appreciation. Unfortunately, the IRS may take a big bite of your proceeds.

In this article, we’ll examine how much you’ll potentially pay in capital gains tax on the sale of a residential investment property, and if you can avoid paying any taxes at all.

Tax Considerations On Sale Of Residential Properties

Let’s start with the good news about capital gains taxes on residential properties.

When selling residential real estate, you won’t have to pay any capital gains taxes on proceeds up to $250,000 as a single-filing taxpayer or $500,000 if married and filing jointly. This is a one-time exclusion, though, and there are some additional caveats.

You’ll have to pay capital gains taxes if any of the following are true:

  • The asset was not your primary residence, or you didn’t live in it for at least two years prior to divestiture.
  • You already excluded capital gains from the sale of a previous residence within the past two years.
  • You purchased the property in a 1031 exchange within a five-year timeframe.

What's The Tax Rate For Capital Gains On A House?

First, you have to determine whether you owe short- or long-term capital gains.

Short-term capital gains taxes. You’ll owe short-term capital gains if you held the asset for less than a year -- think of fix-and-flippers. Short-term gains begin on the date you close on the asset to the date it’s sold if under one year. Short-term capital gains are taxed at the same rate as your current year’s income tax rate since the IRS views these gains as standard income.

Long-term capital gains taxes. If you’ve held the asset longer than 12 months, you may owe long-term capital gains taxes. Typically, the tax rate on long-term gains is a bit more favorable than short-term rates.

Long-term capital gains are taxed according to your filing status and income. Here’s a breakdown of long-term capital gains tax rates for the 2020 tax year:

Filing status





$0 to $40,000

$40,001 to $441,450

above $441,450

Married filing jointly

$0 to $80,000

$80,001 to $496,600

above $496,600

Married filing separately

$0 to $40,000

$40,001 to $248,300

above $248,300

Head of household

$0 to $53,600

$53,601 to $496,050

Above $496,050

It’s also important to note that you might face additional tax liabilities for any depreciation you’ve claimed during ownership of the house.

The Bottom Line

The amount of money you’ll pay in federal capital gains taxes is based on the size of your gains, your federal income tax bracket, and how long you held the asset in question. Also, taxable gains on your primary residence are based on the basis of your home rather than the purchase price -- keep receipts for all work performed and improvements made on the residence to raise your basis and lower any potential tax liabilities. Before selling a residential investment property, it’s a good idea to consult with your accountant to fully understand any tax liabilities you might face.

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Consult with your tax advisor regarding your individual circumstances.

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