Capital Gains When Selling a Home: Could the Tax Exemption Double?

If you have owned your home for many years and watched its value increase, selling can come with a question many homeowners don't think about until they are ready to move: Will I have to pay capital gains tax when I sell my home?

This is becoming especially important for homeowners in high-value areas like Santa Clarita and Southern California, where many longtime homeowners have seen substantial appreciation.

There is also a proposal in Congress that could significantly increase the capital gains exclusion available when selling a primary residence. If passed, it could be a major benefit for longtime homeowners considering a move.

What Are Capital Gains When Selling a Home?

In simple terms, a capital gain is the profit you make when you sell an asset for more than your adjusted cost basis.

For a home, this isn't necessarily as simple as subtracting the original purchase price from the sales price. Your adjusted basis can include certain capital improvements you have made to the property, while selling expenses and other factors may also affect the calculation.

For example, if you purchased a home many years ago for $400,000 and eventually sold it for $1,000,000, that does not automatically mean you have $600,000 of taxable capital gain. Your CPA or tax professional can help determine your actual adjusted basis, eligible expenses and taxable gain.

What Is the Current Capital Gains Exclusion on a Primary Residence?

Under current federal tax law, qualifying homeowners may be able to exclude up to:

$250,000 in capital gains for a single filer

$500,000 in capital gains for a married couple filing jointly

Generally, to qualify for the full primary residence exclusion, you must have owned the home and used it as your primary residence for at least two of the five years before the sale. Additional rules and exceptions can apply, so every homeowner's situation should be reviewed individually.

This exclusion can be extremely valuable, but there is one major problem: the limits have not kept pace with how much home values have increased over the years.

A Proposed Bill Could Double the Home Sale Capital Gains Exclusion

Lawmakers have proposed increasing the federal home-sale capital gains exclusion to:

$500,000 for single filers

$1,000,000 for married couples filing jointly

The proposals would effectively double today's limits and would also provide for future inflation adjustments.

As of 2026, however, this change has not become law. The current $250,000 and $500,000 limits still apply.

Why Increasing the Capital Gains Exclusion Could Help Homeowners

This could be particularly important in markets like Santa Clarita and Southern California.

I've seen this issue firsthand in real estate. Back in 2021, I worked with several longtime homeowners who had owned their properties for 10 years or more and experienced significant appreciation. Some had gains exceeding $500,000 and faced substantial tax consequences when they sold.

And that was several years ago.

Many homeowners who purchased their homes 10, 20 or 30 years ago paid a fraction of what those properties may be worth today. A homeowner may not consider themselves a real estate investor or think of their home as producing a huge "profit," but decades of appreciation can create a significant taxable gain when it comes time to sell.

Increasing the exclusion could allow more of that appreciation to remain with homeowners.

Could a Higher Exclusion Encourage More Homeowners to Sell?

Potentially, yes.

One concern I hear from longtime homeowners is, "If I sell, what will I owe in taxes?"

For some homeowners, the potential tax consequences can become another reason to stay in a property that may no longer fit their lifestyle.

A larger capital gains exclusion could make selling more financially attractive for some longtime owners. That could be particularly beneficial for older homeowners who want to downsize, move closer to family or transition into a different type of property.

It could also potentially help the housing market by removing one financial obstacle that may discourage some longtime homeowners from selling.

Keep Records of Your Home Improvements

One of the biggest mistakes homeowners can make is waiting until they are ready to sell before thinking about taxes.

Certain capital improvements may increase your home's adjusted cost basis, which can potentially reduce the amount of gain subject to tax.

That is why it can be important to maintain records and receipts for major improvements made throughout your ownership.

A remodeled kitchen, room addition, new roof or other qualifying capital improvement may affect your basis differently than routine repairs and maintenance. A qualified tax professional can determine which expenses qualify and how they should be documented.

Talk to Your CPA Before You List Your Home

As a Realtor, I can help determine your home's potential market value, estimated selling expenses and what you might expect to walk away with from the real estate transaction.

But capital gains and tax planning should be discussed with a qualified CPA or tax professional.

If you have significant equity in your home, I recommend having that conversation before you put your home on the market, not after you sell.

Your CPA can review your original purchase price, improvements, adjusted basis, expected selling expenses, filing status and other circumstances to help you understand the potential tax consequences of selling.

The goal is to know your numbers ahead of time so you can make an informed decision and keep as much of your equity as legally possible.

Thinking About Selling Your Santa Clarita Home?

If you have owned your home for many years and aren't sure what it is worth today, the first step is understanding your current equity.

I can provide a personalized home value and selling analysis so you have a clearer picture of your property's current market value and estimated proceeds. From there, I recommend working with your CPA or tax professional to determine how a sale could affect your individual tax situation.

Whether you're considering downsizing, moving out of California, buying another home or simply wondering whether now is the right time to sell, having the numbers in front of you can make the decision much easier.

Jessica Ranuschio | Home661
Santa Clarita Real Estate Broker
DRE #01987956

This article is for general informational purposes only and is not tax, accounting or legal advice. Tax laws and proposed legislation can change. Consult a qualified CPA, tax professional or attorney regarding your individual situation.