Selling Your House?

A Hot Real Estate Market

Miami is certainly receiving the benefit of people and businesses leaving California and New York for warmer and tax-friendly Florida. To people from Silicon Valley and New York City, Miami can still feel relatively affordable. And of course, with limited building area, we can only go up.

We see clients make this calculation: I can sell here for $1,200,000 and buy twice the house in North Carolina (or many other places) for a lot less and bank the rest. What’s holding me back? Before you make that move, let’s talk about the tax picture.

Taxation Issues When You Sell Your House

The IRS may tax the gain on the sale of your personal residence. Real estate is capital gains property. You are taxed on the gain over your tax basis. If you bought your home at, say, $100,000 many years ago and sell today at $750,000, there is a $650,000 gain. But the good news is that not all of that money will be taxable.

The Section 121 Exclusion – Current Law (Still $250,000 / $500,000)

Section 121 of the Internal Revenue Code specifies how gains on the sale of a personal residence are taxed. If you have lived in the home for at least 24 of the previous 60 months, a single taxpayer can exclude $250,000 of gain, and married taxpayers filing jointly can exclude $500,000 of gain. The 24 months need not be consecutive.

Using the example above: with a $650,000 gain, married filers could exclude $500,000, leaving only $150,000 subject to capital gains tax. A single filer would exclude $250,000, leaving $400,000 taxable. A salient point for those planning to move away or just downsize.

Note: There are additional rules that apply if the property was in nonqualified use – for example, if you used it as a rental property before you yourself moved in. A tax advisor can help you work through those calculations.

Is Your Basis Accurate?

Old tax law once held that if the taxpayer used the proceeds to purchase a new residence, the gain would not be taxed. Many people still think this is true. It is not. That rollover rule was repealed in 1997 when Section 121 was enacted. The gain exclusion is the only relief available on a primary residence sale under current law.

What can you do to mitigate any taxable gain? Examine your basis. If you can legitimately increase your basis in the property, you can lower the potential taxable gain. If you are married, lived in the property for more than two years, and have less than $500,000 in gain, then basis may not even be a concern and you may not need to report anything on your tax return.

But if you’ve lived in the property a long time, chances are you do have items that increase your basis. These are capital improvements – not repairs, but improvements. You added a deck. You pulled up the carpet and tiled the floors. New light fixtures. You redid the bathrooms. These are all improvements and can increase your basis, thereby reducing the taxable gain. Here’s the critical point: you must be able to document the money spent on these improvements. Keep your receipts and document every improvement.

Capital Gains Tax Rates – 2026

The gain that exceeds your exclusion is subject to federal capital gains tax. Because a home is almost always held for more than one year, the gain is taxed at the long-term capital gains rates, which are significantly lower than ordinary income rates.

📅 2026 Long-Term Capital Gains Rates (for gains on assets held over 1 year):

• 0% rate: Single filers with total taxable income at or below $49,450; married filing jointly at or below $98,900.
• 15% rate: Single filers with income from $49,451 to $545,500; married filing jointly from $98,901 to $613,700.
• 20% rate: Single filers above $545,500; married filing jointly above $613,700.

These brackets are based on your total taxable income for the year, not just your capital gain. A large gain from a home sale can push you into a higher bracket for the entire gain. Additionally, the Net Investment Income Tax (NIIT) of 3.8% may apply to the taxable gain if your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly). These NIIT thresholds are not inflation-adjusted and have remained unchanged since 2013.

The Alternative Minimum Tax (AMT) – Updated Warning for 2026

While long-term capital gains are taxed at the same preferential rates (0%/15%/20%) under both the regular tax system and the AMT, a large capital gain from a home sale can still trigger AMT in an indirect but significant way: the additional income can reduce or eliminate your AMT exemption, causing the AMT to apply to other income that would otherwise have been sheltered. Starting in 2026, the OBBBA tightened the AMT exemption phaseout rules. The phaseout threshold dropped to $500,000 for single filers and $1,000,000 for married couples (down from $626,350 and $1,252,700 in 2025). Worse, the phaseout rate doubled from 25 cents to 50 cents for every dollar over the threshold, meaning exemptions disappear much faster. For high-income homeowners selling a long-appreciated property, AMT exposure in 2026 is meaningfully greater than it was in 2025. The 2026 AMT exemption is $90,100 for single filers and $140,200 for married couples filing jointly. If your income from all sources – including the taxable portion of your home sale gain – approaches or exceeds the phaseout thresholds, consult a tax advisor before closing.

Still Being Priced Out?

No one knows how long any hot market will endure. Miami continues to attract residents and businesses from high-tax, high-cost states, and the city’s limited building footprint keeps upward pressure on prices. But wherever you live, if you’re considering a sale, the tax analysis should be part of the conversation before you list.

You might also be interested in these related posts from Cameron Downing:

• Your First Home Purchase – Part I: Obtaining Your First Mortgage
• Your First Home Purchase – Part II: How Much Mortgage Can I Afford?
• Using an IRA for a First Home Purchase
• Should I Pay My Mortgage Off Early?
• The 15-Year Mortgage
• Real Estate Investing – Part I
• Real Estate Investing – Part II

Questions?

Quick Reference: Home Sale Tax Rules – April 2026

• Section 121 exclusion: $250,000 (single) / $500,000 (married filing jointly) – unchanged from original law; requires 2 of last 5 years as primary residence.
• Rollover rule: No longer exists. Repealed in 1997. Using proceeds to buy a new home does not defer or eliminate the gain.
• Long-term capital gains rates (2026): 0% / 15% / 20% based on total taxable income. Most sellers pay 15%.
• Net Investment Income Tax (NIIT): Additional 3.8% on taxable gain if MAGI exceeds $200,000 single / $250,000 married. Thresholds are not inflation-adjusted.
• AMT warning (2026): Phaseout threshold lowered and rate doubled by OBBBA. High-income sellers with large gains face increased AMT exposure. Consult a tax advisor.
• Basis increases: Document all capital improvements (decks, flooring, bathrooms, etc.) and selling costs – these reduce your taxable gain.
• Reporting: If gain is fully excluded, no reporting required on your tax return. Any taxable excess is reported on Schedule D.