To avoid or minimize taxes on home sale proceeds, primarily use the IRS home sale exemption, which allows individuals to exclude up to $ 250 , 000 $ 2 5 0 , 0 0 0 ( $ 500 , 000 $ 5 0 0 , 0 0 0 for married couples) of profit, provided the home was a primary residence for at least two of the last five years. Increase your cost basis by adding home improvement costs and closing fees to lower taxable gains.
If you owned and lived in the home for a total of two of the five years before the sale, then up to $250,000 of profit is tax-free (or up to $500,000 if you are married and file a joint return). If your profit exceeds the $250,000 or $500,000 limit, the excess is typically reported as a capital gain on Schedule D.
Strategies to Save Capital Gains Tax on Property Sales
If you sell your house and don't buy another, you'll have cash proceeds (after paying off the mortgage and selling costs) and need to decide on new housing, often renting or moving in with family; financially, you might benefit from the IRS capital gains exclusion (up to $250k/$500k profit if you've lived there two of the last five years), but you'll pay tax on gains beyond that, while also managing the new costs of renting or storage.
The "3-3-3 rule" in real estate isn't a single guideline but refers to different strategies: for buyers, it's about financial readiness (3 months savings, 3 months reserves, 3 property comparisons) or a financial affordability check (30% income, 30% down, 3x income); for agents, it's a marketing habit (call 3, note 3, share 3) or prospecting (talking to everyone within 3 feet). There's also a developer rule (1/3 land, 1/3 build, 1/3 profit), though it's considered outdated by some.
If the home is a rental or investment property, use a 1031 exchange to roll the proceeds from the sale of that property into a like investment within 180 days. 14.
Capital gains tax rates
A capital gains rate of 0% applies if your taxable income is less than or equal to: $48,350 for single and married filing separately; $96,700 for married filing jointly and qualifying surviving spouse; and. $64,750 for head of household.
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%).
Qualifying for the exclusion
In general, to qualify for the Section 121 exclusion, you must meet both the ownership test and the use test. You're eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale.
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The beneficiary claiming the discount must be an Australian resident for tax purposes. The trust must have held the asset for at least 12 months before the CGT event occurs.
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.
There isn't a single "one-time" capital gains exemption, but the most common exemption allows you to exclude up to $250,000 (single) or $500,000 (married filing jointly) of profit from the sale of your primary residence, which can be used multiple times as long as you meet ownership and use tests (lived in it 2 of the last 5 years) and haven't used the exclusion in the past two years. Other options exist, like 1031 exchanges for investment properties or Charitable Remainder Trusts, but they have different rules.
Second, capital gains taxes on accrued capital gains are forgiven if the asset holder dies—the so-called “Angel of Death” loophole. The basis of an asset left to an heir is “stepped up” to the asset's current value.
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.
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.
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.
Offset any losses you've made on other assets against your gain. So, if you have a share portfolio or family heirloom that sold at a loss, for example, you can use that to reduce the taxable gain against another asset you're selling, such as property.
To qualify for 0% capital gains tax, you must have long-term capital gains (assets held over a year) and your taxable income (after deductions) must fall below specific IRS thresholds, which change annually but are roughly <$48,350 for single filers and <$96,700 for married filing jointly for the 2025 tax year, allowing for higher total income when combined with deductions like the standard deduction. The key is keeping your adjusted gross income (AGI) low enough so that after subtracting deductions, your taxable income remains within these limits.
If you sell your house and don't buy another, you'll have cash proceeds (after paying off the mortgage and selling costs) and need to decide on new housing, often renting or moving in with family; financially, you might benefit from the IRS capital gains exclusion (up to $250k/$500k profit if you've lived there two of the last five years), but you'll pay tax on gains beyond that, while also managing the new costs of renting or storage.
Using the money you earned from your home sale to help purchase another home is often a wise choice, especially when interest rates are relatively high. The bigger your down payment, the smaller the loan you'll have to pay off.