There’s no place like home — until the capital gains taxes come knocking. For many, soaring property values have pushed profits from home sales beyond tax exemption limits. While the IRS allows couples to avoid tax on up to $500K in capital gains from selling their primary residence, ~8% of home sales exceeded this threshold last year — triggering the capital gains tax, as reported by CoreLogic.

• In California, the percentage of home sales that surpassed the $500K exemption has doubled from the 2017-2019 average of 13.2% to 28.8% in Q4 2023. This metric has grown even faster in once-sleepy states.
• For instance, in Colorado, New Jersey, Rhode Island, and Oregon, the percentage of home sales with capital gains above $500K has nearly quadrupled over the same period.

Selling can wait: Since 1997, the capital gains exemption for home sales has remained unchanged. Adjusted for inflation, the $500K exemption would be equivalent to $262K today, significantly reducing its effectiveness. If you’re planning to sell your home, one way to lower your tax bill is by keeping records of renovations and improvements, which can be deducted from your taxable profit.