Skip to content


When You Sell Your Home to Buy Orange County Real Estate, Do You Pay Capital Gains Tax?

Unless you’re a first-time homebuyer, you’ll most likely have to sell your current home in order to buy your new Orange County home. If you’ve owned your current property for awhile, you may even realize a substantial profit on the price you sell for over what you originally paid. Such a profit is called capital gains.

The capital designates anything that you own or use. The gain is the money you make from selling it.

Tax Exclusion

Like any investment profit, you will be taxed on the capital gains from your home sale. Luckily, you can exclude up to $250,000 of your gain from the sale of a home if you’re single, and up to $500,000 if you’re married and file a joint return. Some other things to keep in mind:

  • This is not a one-time exclusion. You can use this exemption every time you sell your home.
  • Age is not an issue. You do not have to be a senior citizen.
  • You do not have to buy a more expensive home within a certain period of time. Even if you buy a home that’s cheaper than the one sold, you get the exclusion.
  • You don’t have to be currently living in your home. But you must have used the home as your primary residence for a total of at least two out of the five years before the date of sale. You could have, for example, lived in the home for six months every year for the last four years and you would qualify.

You may also be eligible for a partial exclusion if you’re forced to move from your home because of work-related or health-related events, or an unforeseeable event, such as if your house is destroyed by a natural disaster.

Cost Basis

For tax purposes, capital gains are calculated by subtracting the cost basis from what you sold your house for. The cost basis is the original purchase price of the home plus what you spent to improve it. If you’re in danger of exceeding the exclusion amount, you can try to increase the cost basis under certain qualifications:

  • You can add the cost of an improvement but not a repair. For example, remodeling a kitchen or adding a bath is considered an improvement so you can deduct all costs associated with it. Repainting the kitchen or replacing a broken faucet is considered a repair and is not deductible.
  • You may require the services of a tax lawyer or accountant to determine if certain changes to the home are considered improvements or repair.
  • You can also deduct fees associated with the buying of your home. These include legal fees, transfer taxes, title insurance, and survey fees. You cannot deduct insurance premiums, mortgage insurance premiums, or appraisal fees.

The more money you can generate from the sale of your home by not paying taxes, the more you’ll have to put toward the purchase of a new property.

If you want to know more about buying a home or would like to check out one of our developments in person, please contact us.