How Much Is the Capital Gains Tax on Real Estate?

So, you sold your home and just left the closing attorney’s office with a fat check. Not just a big check—but the biggest check you’ve ever held in your sweaty palm.

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After the excitement fades and you recover from your celebratory steak dinner, you might be wondering: Do I have to pay taxes when I sell my home? What about my rental property? 

 

Just like with anything else tax-related, figuring all this out can get very complicated very quickly. And if you want to avoid paying more in taxes than you have to, you might need to jump through some hoops.

What Is the Capital Gains Tax Rate on Real Estate?

First, let’s talk about capital gains. When you sell something (like a house or rental property) for more money than you paid for it, the difference is usually called a profit. But to the IRS, those profits are called capital gains—and you can bet your bottom dollar that the tax man wants his cut.

Your capital gains tax rate on the sale of your home or rental property depends on three things:

• How long you owned the property
• Your taxable income
• Your filing status

Short-Term Capital Gains Tax

If you owned a piece of real estate for a year or less when you sold it, you would owe short-term capital gains tax on that property. Short-term capital gains are taxed at your ordinary personal income tax rate—which could be anywhere from 10–37%.

2026 Short-Term Capital Gains Tax Rates

Tax Rate	Single Filer	Married Filing Jointly	Married Filing Separately	Head of Household
10%	$0–11,925	$0–23,850	$0–11,925	$0–17,000
12%	$11,925–48,475	$23,850–96,950	$11,925–48,475	$17,000–64,850
22%	$48,475–103,350	$96,950–206,700	$48,475–103,350	$64,850–103,350
24%	$103,350–197,300	$206,700–394,600	$103,350–197,300	$103,350–197,300
32%	$197,300–250,525	$394,600–501,050	$197,300–250,525	$197,300–250,500
35%	$250,525–626,350	$501,050–751,600	$250,525–375,800	$250,500–626,350
37%	Over $626,350	Over $751,600	Over $375,800	Over $626,3503

Long-Term Capital Gains Tax

What if you owned the property for more than a year? Well, you’re in a bit more luck—because now you’re dealing with long-term capital gains, which are taxed at friendlier rates (0%, 15% or 20%, depending on your income and filing status).

2026 Long-Term Capital Gains Tax Rates

Tax Rate	Single	Married Filing Jointly	Married Filing Separately	Head of Household
0%	$0–49,450	$0–98,900	$0–49,450	$0–66,200
15%	$49,450–545,500	$98,900–613,700	$49,450–306,850	$66,200–579,600
20%	Over $545,500	Over $613,700	Over $306,850	Over $579,6004

Notice these rates are much lower than normal federal income tax rates.

The real median household income in the United States in 2024 was $83,730.⁵ That means many people who have long-term capital gains, depending on whether they’re single or married, fall into the 15% tax bracket (or are right on the border).

Do I Need to Pay Capital Gains Tax on the Sale of My Home?

Okay, so here’s the deal. If the home you sold was your primary residence, you don’t have to pay capital gains tax on your profit up to a certain amount.

This is called the primary residence exclusion, and the IRS is pretty generous (for once!) on how much profit they exclude from taxes. Here’s what you need to know:

• Profit limits: If you’re single, any profit up to $250,000 is excluded from taxes. For married filing jointly, the amount doubles to $500,000.⁶ That’s right—no taxes, baby! 
• Residency requirement: To qualify, you must have owned and lived in the home as your primary residence for at least two of the last five years before the sale.
• Frequency limit: In most cases, you can only use this exclusion once every two years. So if you sell a home less than two years after your last sale, you might not qualify.

Now, profit doesn’t simply mean how much money you got when you sold your house. Profit is the sales price minus the original purchase price and the cost of improvements, fees and commissions. If the housing market in your area has gone bonkers and you made a big profit on the sale of your house, you only pay taxes on any profit above the $250,000 or $500,000 limit.

How Capital Gains Tax Works When You Sell a House

Let’s look at an example. Say you and your spouse bought a house a while back for $300,000 in an up-and-coming part of town. After 10 years, you decide to sell. The home values in your area have shot up like crazy, so you were able to sell your home for $900,000. Boom! You couldn’t stop smiling for a week.

But as you pop the champagne to celebrate, you start wondering if you’ll owe capital gains tax on the profit.

So, to figure out your profit, start with $900,000 and subtract the original $300,000 purchase price, about $55,000 in commissions and fees, and let’s say $20,000 in home renovations (like a new roof). That leaves you with $525,000 profit. Since the tax-free threshold for married couples is $500,000, you’ll pay capital gains tax on just $25,000.

Calculating Home Sale Profit	Calculating Amount Subject to Capital Gains Tax
$900,000 selling price - $300,000 original purchase price - $55,000 commissions and fees - $20,000 home renovations = $525,000 profit	$525,000 profit - $500,000 primary residence exclusion $25,000 subject to capital gains tax

Now to your tax bill. Since you lived in the home for 10 years, you’ll owe long-term (more than one year) capital gains tax on the profit above the primary residence exclusion.  

Let’s say your household income is $150,000—that puts you in the 15% capital gains bracket. (Like we mentioned earlier, the long-term capital gains tax rate is 15% for married couples filing jointly with a household income between $98,900 and $613,700.⁷)

Since your taxable profit was $25,000, that means you’ll owe $3,750 in taxes. Yes, that’s a lot of money, but when you consider you got $525,000 from the sale of your home, it’s small potatoes.

When I Sell a Rental Property, What Taxes Do I Owe?

If you own a rental property, things are a little different. The rent you collect is considered regular income, and you’ll pay income taxes on it like a normal paycheck. But if you decide to sell the property, you’ll probably owe capital gains tax on your profit. And since a rental isn’t your primary residence, you won’t be able to exclude a portion of your profit.

So if you owned the property a year or less, you’ll pay short-term capital gains tax at your normal income tax rate. If you owned the property over a year, you’ll pay long-term capital gains tax at a rate of 0%, 15% or 20% depending on your income. (We talked about those income ranges earlier.)

And on top of the capital gains tax, the net investment income tax (NIIT) is a 3.8% tax that applies to the net investment income of certain taxpayers with an income above a certain threshold.⁸  

If your income exceeds the following amounts and you have net investment income from the sale of a second home or rental property (the NIIT doesn't apply to primary residences), you’ll probably owe NIIT:

Income Limits for the Net Investment Income Tax

Filing Status	Threshold Amount
Single	$200,000
Married filing jointly	$250,000
Married filing separately	$125,000
Head of household	$200,0009

How Do I Avoid or Reduce Capital Gains Tax on Real Estate Sales?

Of course, no one wants to pay more in taxes than they absolutely have to. That means you need to be smart and take advantage of opportunities to legally lower your tax burden on the sale of any real estate you own—whether it’s the place you call home or the rental property you decided wasn’t worth the hassle anymore. Here are some easy ways to do just that:

Stay in your home for at least two years.

If you meet the two-year residency requirement—meaning your home was your primary residence for at least two of the last five years (and you have the random carpet stains to prove it)—you probably won’t get hit with capital gains tax when you sell. That’s because the profit threshold ($250,000 or $500,000) is so high.

But if you earned a profit on a home you lived in for less than two years, the tax man is going to come calling. And he could hit you with a big bill! Whether you fix up and flip houses or just moved to a new neighborhood, if you don’t meet the residency requirement, you’ll be taxed on your profit—either at your regular income tax rate or the capital gains rate, depending on how long you owned the home.

There are a few other ways to avoid the capital gains tax, but the big one is to stay put! Don’t sell your house before you’ve owned it for two years.

Deduct the cost of home improvements and sales-related real estate costs.

One of your best bets for lowering your tax bill (at least a little) is to keep a detailed list of all the improvements you made to your home so you can subtract them from your profit. Did you completely gut the bathroom? Remodel the kitchen? You can subtract those expenses—so make sure you keep good records.

And when you finally sell your home, real estate commissions and closing costs can also be subtracted from your profit. Score!  

Just like with a primary residence, you can subtract the cost of improvements, real estate commissions and closing costs from the profit on your rental property. And speaking of rental properties . . .

Take advantage of a 1031 exchange.

One really cool way to avoid capital gains tax on the sale of a second home or rental property is to do a 1031 exchange. Ugh, the IRS and their numbered forms. But hang with us—this’ll be worth it.

A 1031 like-kind exchange allows you to defer paying capital gains tax if you reinvest the proceeds from the sale of a property into another similar property. That’s right: If you sell a rental property and buy another with the money you made on that sale, you won’t have to pay any capital gains tax on the sale.

1031 Exchange Quick Rules

Rule	Requirement
Property type	The replacement property must be “like-kind”—in other words, real estate for real estate. For example, you can exchange a rental home for a commercial property, but not real estate for stocks.
Tax deferral limit	Your taxes are deferred, not eliminated—you’ll eventually owe them when you stop reinvesting.
Identification deadline	You must identify the replacement property within 45 days of the sale.
Closing deadline	You must close on the replacement property within 180 days of the sale.10

There are a few rules for 1031 exchanges, though. The IRS allows you to do as many as you want. But as soon as you stop investing your proceeds into similar properties, you’ll have to pay capital gains tax.

The IRS is somewhat flexible about what counts as similar. For instance, you could sell a rental home and buy a commercial property or an apartment complex and defer capital gains tax. But you couldn’t sell a home and invest the money in mutual funds or some other investment like cryptocurrency (crypto is never a good idea anyway). Well, technically, you could—you’ll just have to pay taxes on it.

You also must identify a replacement property within 45 days of the sale. (That means you’ll need to shop for another property ASAP.) Then you must close on it within 180 days.¹¹ Whoa, that’s a lot of pressure—especially if you’re the type who takes three hours to make a simple decision like which movie to watch.

So, the key is to plan ahead!

Could Capital Gains Tax Rules on Real Estate Change?

There’s been some talk in Washington lately about reducing or eliminating capital gains tax on real estate sales. The idea is to increase the housing supply and motivate homeowners who feel “locked in” by the low mortgage rates they secured years ago to sell.

In early March 2026, lawmakers pushed for a change that would adjust a property’s purchase price for inflation when calculating capital gains taxes. In plain English? That could reduce how much of your profit gets taxed.¹²

There’s also a bipartisan bill called the More Homes on the Market Act that was introduced in 2025. If passed, it could double the tax-free profit limits to $500,000 for single filers and $1 million for married couples filing jointly—and adjust those amounts for inflation each year. But as of March 2026, this bill is still sitting in a House committee—more than a year after it was introduced.¹³

But before you break out the confetti cannons, keep in mind that right now it’s all just talk. There’s a lot of debate around whether or not these are good ideas, and a lot would need to happen for anything to change. So if you’re waiting around for Washington to do something, you might be waiting around a long, long time.