Capital Gains Explained—What Long-Term Homeowners Should Expect When Selling

After decades in your home, selling can feel like the end of an era—and the beginning of a new adventure. But before you pop the champagne, there’s one important financial detail to understand: capital gains. If you’ve built up a lot of equity over 20 years, here’s what you need to know about capital gains and how they might affect your sale.

What Are Capital Gains?

When you sell your home for more than you paid for it, the profit is called a capital gain. Over 20 years, thanks to rising property values and mortgage pay-down, your gain could be substantial. But not all of it is necessarily taxable.

The IRS Exclusion—A Big Benefit for Homeowners

The good news: Most homeowners qualify for a generous tax break. If you’ve lived in your home for at least two of the last five years, you can exclude up to $250,000 of profit from your taxes if you’re single, or up to $500,000 if you’re married and file jointly. This exclusion can dramatically reduce or even eliminate the taxes owed on your sale.

How to Calculate Your Gain

• Start with your original purchase price.
• Add the cost of major improvements (think kitchen remodels or additions, not routine maintenance).
• Subtract selling costs like agent commissions and closing fees.
• The result is your adjusted cost basis. Your capital gain is the sale price minus this number.

What Happens If Your Gain Is Over the Exclusion?

If your profit exceeds the IRS exclusion, you may owe capital gains tax on the amount above the limit. The rate depends on your income and how long you owned the home, but for most, it’s less than ordinary income tax rates. Consulting a tax professional can help you plan ahead and avoid surprises.

Tips for a Smooth Sale

• Keep records of all major home improvements and receipts.
• Talk to a tax advisor early in the process.
• Understand your local market to maximize your sale price.

Selling after 20 years is a big milestone. By understanding capital gains and planning ahead, you can move forward with confidence—and keep more of your hard-earned equity for your next chapter.