If you are a resident of the US, you will likely pay $0 in capital gains tax if the $400,000 represents the total sale price of your primary residence, as long as you lived in it for at least two of the last five years. Under the Section 121 exclusion, individuals can exclude up to $250,000 of gain ($500,000 for married joint filers).
For example, a married couple filing jointly with $400,000 in taxable income would pay 32% tax on any short-term capital gains, based on 2025 tax rates. That same couple would pay 15% tax on any long-term capital gains.
When you sell your primary residence, $250,000 of capital gains (or $500,000 for a couple) are exempted from capital gains taxation. This is generally true only if you have owned and used your home as your main residence for at least two out of the five years prior to the sale.
Your adjusted cost base was $400,000, so your total capital gain is $100,000, and your taxable capital gain is 50% of that, or $50,000.
Capital gains tax on $300,000 depends on your filing status and total income, but for most, it will be taxed at the 15% federal rate, meaning around $45,000 in tax, potentially rising to 20% if your total income is very high, and you'll also need to account for state taxes and potentially a 3.8% Medicare surtax. A $300,000 gain usually falls into the 15% bracket for single filers (above $48,350) and married filing jointly (above $96,700), while for married filing separately, it hits the 20% bracket (over $300,000).
On a $100,000 capital gain, you'll likely pay 15% for long-term gains, resulting in about $15,000 in federal tax (plus potential state tax), but it could be 0% or 20% depending on your total taxable income and filing status, while short-term gains are taxed as ordinary income (potentially 22-24%).
Use your principal residence exemption
Your principal residence is exempt from the capital gains tax. To claim this exemption, make sure: You own the home, alone or jointly. You've designated the property as your principal residence with the CRA.
To calculate capital gains on a home sale, find your "Amount Realized" (Sale Price - Selling Costs) and subtract your "Adjusted Basis" (Original Purchase Price + Improvements + Buying Costs), then see if the gain qualifies for the IRS $250k/$500k exclusion for primary residences; any profit above the exclusion is taxable.
You can avoid or defer capital gains tax on real estate by using the primary residence exclusion ($250k/$500k for 2-year ownership), executing a 1031 Exchange for investment properties, selling at a loss to offset gains, gifting to charity, holding the property in a self-directed IRA, or using strategies like installment sales, but the most common methods involve living in the home or reinvesting in another property.
Capital gains tax on property depends on if it's your primary home (often excluded) or investment property, the holding period (short-term taxed as ordinary income, long-term at 0%, 15%, or 20%), and your income bracket; for primary homes, up to $250k (single) / $500k (married) profit is often excluded if lived in for 2 of last 5 years, while investment property gains are generally 0%, 15%, or 20% (long-term) or up to 37% (short-term), with potential 25% depreciation recapture.
The 20% rule for capital gains refers to the highest federal tax rate for long-term capital gains, applying to higher income brackets when you sell investments (stocks, real estate) held for over a year, with lower rates of 0% and 15% for lower incomes, and even higher rates for special assets like collectibles. This rate kicks in for single filers earning over approximately $492,300 (2024) or $533,401 (2025), and higher for joint filers, making holding assets over a year a key tax strategy.
A common way to defer or reduce your capital gains taxes is to use tax-advantaged accounts. Retirement accounts such as 401(k) plans, and individual retirement accounts offer tax-deferred investment. You don't pay income or capital gains taxes on assets while they remain in the account.
To calculate capital gain on property, find the difference between the net sales price (sale price minus selling expenses) and the adjusted cost basis (original cost plus improvements minus depreciation), which reveals your profit or loss; if positive, it's a gain, classified as short-term (held 1 year or less) or long-term (held over a year), impacting your tax rate.
The "6-year rule" for Capital Gains Tax (CGT) in Australia allows you to treat a former main residence as tax-exempt for up to six years after you move out, even if you rent it out, enabling you to avoid CGT on any growth during that period. You qualify by moving out, choosing to treat it as your main home for tax, and can reset the rule by moving back in. If you rent it out for longer than six years, only the portion of the gain after the six-year mark becomes taxable.
You must have owned and lived in the home as your primary residence for two of the last five years before the sale. Under our scenario above, if the homeowner were single, her federal capital gain would be $400,000 - $250,000 = $150,000, and her federal capital gain tax would be $150,000 x 15% = $22,500.
If you sell a property and realize a $400,000 capital gain after June 25, 2024: The first $250,000: 50% taxable ($125,000) The next $150,000: 66.67% taxable ($100,005) Total taxable: $225,005.
It allowed sellers to claim CGT exemption for the final 36 months of ownership, even if they had moved out. However, this was reduced to 18 months in 2014 and further to 9 months in 2020, which remains the rule today. This general law is in place as it prevents short-term transaction benefits concerning taxation.
Avoiding Capital Gains Tax: Strategies to avoid or reduce capital gains tax on real estate include waiting at least a year before selling a property (qualifying for long-term capital gains), taking advantage of primary residence exclusions, rolling profits into a new investment via a 1031 exchange, itemizing expenses, ...
On a $100,000 capital gain, you'll likely pay 15% for long-term gains, resulting in about $15,000 in federal tax (plus potential state tax), but it could be 0% or 20% depending on your total taxable income and filing status, while short-term gains are taxed as ordinary income (potentially 22-24%).
The main difference is the timing of those tax charges. For example, when you provide a gift, you can choose the timing of that disposition to minimize the taxes owed. However, if you leave an inheritance, your estate will pay the taxes based on the market value at your date of death.
Capital gains tax on $300,000 depends on your filing status and total income, but for most, it will be taxed at the 15% federal rate, meaning around $45,000 in tax, potentially rising to 20% if your total income is very high, and you'll also need to account for state taxes and potentially a 3.8% Medicare surtax. A $300,000 gain usually falls into the 15% bracket for single filers (above $48,350) and married filing jointly (above $96,700), while for married filing separately, it hits the 20% bracket (over $300,000).
When you sell your home or when you are considered to have sold it, usually you do not have to pay tax on any gain from the sale because of the principal residence exemption. This is the case if the property was solely your principal residence for every year you owned it.
Your capital gain (profit) is $200,000. Your taxable capital gain with the 50% discount applied is $100,000. Your estimated capital gains tax obligation is $37,175.