How much tax you pay when selling a U.S. home: the 2026 numbers

Which taxes apply when you sell a U.S. home?

Three layers. Federal capital gains tax, charged on the profit and not on the sale price. California, which has no separate capital gains rate and simply folds the profit into your state income tax at up to 13.3%. And, on a rental only, recapture of the depreciation you deducted while you owned it.

Two more items come out of your proceeds without being taxes: California withholds 3.33% of the sale price from sellers, and foreign sellers also face federal FIRPTA withholding. Withholding is not tax; what was over-withheld comes back when you file.

How is the profit calculated? It is not simply sale price minus purchase price

The gain is the sale price, minus your adjusted cost basis, minus your selling costs.

Adjusted cost basis is what you paid, plus your closing costs when you bought, plus the capital improvements you made over the years: a new roof, an added room, a rebuilt kitchen. Routine repairs do not count.

Selling costs include commission, escrow fees, title insurance and transfer taxes.

People who simply subtract the purchase price overstate the gain and overpay. Keep the improvement receipts; this is real money.

How much does the primary-residence exclusion cover?

$250,000 for a single filer, $500,000 for a married couple filing jointly.

You must have owned the home for two of the five years before the sale and lived in it for two of those five years. The two periods need not overlap and need not be continuous. You can use the exclusion only once in any two-year period.

An example: a couple buys a home in 2018 for $900,000 and sells in 2026 for $1,400,000. After roughly $60,000 of buying and selling costs the gain is $440,000, under the $500,000 limit, so nothing is owed federally or to California. This is why some families move back into a property for two years before selling.

What are the federal rates on the part above the exclusion?

It depends on how long you held it. Over a year is long-term: in 2026 a single filer pays 0% up to $49,450 of taxable income, 15% up to $545,500 and 20% above that; for a married couple filing jointly those cutoffs are $98,900 and $613,700.

Under a year is short-term, taxed as ordinary income at up to 37%, which is the real cost of selling quickly.

Higher earners also pay the 3.8% Net Investment Income Tax above modified adjusted gross income of $200,000 single or $250,000 joint. Those thresholds are fixed in the statute and are not indexed for inflation, so they catch more people every year.

How does California treat it?

California has no separate capital gains rate. The gain goes straight into your state income tax for the year at the ordinary progressive rates, up to 13.3%.

So a large gain can face 20% federal, plus 3.8%, plus up to 13.3% state, which together can pass a third. Work that out before deciding to sell, not at tax time.

How is a rental different from a primary residence?

Two ways. A rental gets no $250,000 or $500,000 exclusion. And the depreciation you deducted each year is recaptured on sale at up to 25%, regardless of your income level.

So a long-held rental can owe a meaningful amount even when the paper gain looks modest.

Can a 1031 exchange defer the tax?

Yes, provided both the property sold and the property bought are held for investment. A primary residence does not qualify.

Two deadlines are absolute: you must identify the replacement property in writing within 45 days of the sale and close within 180 days. Neither is extendable. The funds must be held by a qualified intermediary; touching the money yourself voids the exchange.

A 1031 defers the tax, it does not erase it. The bill arrives when the replacement property is eventually sold.

How does FIRPTA withholding work for a foreign seller?

When the seller is not a U.S. tax resident, the buyer is required to withhold part of the sale price and send it to the IRS, generally 15%.

Note that it is withheld from the sale price, not the gain, so it applies even on a sale at a loss.

Two reductions: at a price of $1,000,000 or less where the buyer will occupy the home, the rate drops to 10%; at $300,000 or less with buyer occupancy it can be zero. You can also apply to the IRS before closing for a withholding certificate.

We have run this: the withholding goes to the IRS on Form 8288 at closing, and the excess is claimed back on the following year's return, roughly a year end to end. The money is not lost, but plan your cash around it.

There is also a 3.33% California withholding?

Yes, California withholds 3.33% of the sale price from sellers. A primary residence or a sale at a loss can be exempt, but you have to file the form; without it the withholding simply happens.

Many sellers first notice it on the closing statement. Handling it in advance avoids that.

So what actually lands in my account at closing?

Put these together for the real answer: sale price, less the loan payoff, less commission, less closing costs (escrow fee, title insurance, transfer taxes, typically 1% to 2% of the price), less the 3.33% California withholding if not exempt, and less FIRPTA withholding for a foreign seller.

Tax itself is settled the following year when you file, which is a separate matter from the cash you receive at closing. Confusing the two is why the numbers often seem not to add up.

Send us the address and we will put a net-proceeds estimate together for your property. No charge.