The capital gains exclusion on a primary residence is $250,000 for a single filer and $500,000 for a married couple filing jointly. The Taxpayer Relief Act of 1997 set those ceilings, and they have not moved since. Most sellers anchor on that number and stop reading, which is how a large paper gain turns into a worry the math does not support.
Two layers sit between the sale price and the taxable gain, and both work in the seller's favor.
The first is basis. Every documented capital improvement raises what the IRS treats as your cost in the home: the kitchen, an added bath, the roof, the HVAC, the terrace. Routine repairs and maintenance do not count, and the receipts are the price of admission, but two decades of ownership usually hide six figures here. The second is selling costs. Commission and closing costs come off the top before the gain is calculated at all.
Only what is left, after both layers and then the exclusion, is taxable. On that slice, the top federal long-term rate is 20 percent, plus the 3.8 percent net investment income tax once income clears $200,000 single or $250,000 married, for a ceiling of 23.8 percent. Real money on a large gain, and still a fraction of what the gross sale price implies.
Washington is circling the ceiling again. The More Homes on the Market Act would double the exclusion to $500,000 single and $1 million married and index it to inflation. Read it as a weather pattern, not a forecast. Representatives Jimmy Panetta and Mike Kelly introduced it in February 2025. It has since collected well over a hundred House cosponsors and a Senate companion, and the House bill still has not left the Ways and Means Committee. Nothing about a 2026 sale should assume it passes.
Two takeaways. If you have owned a long time and the headline number has you frozen, run the basis math before you decide anything, because the answer is usually smaller than the fear. And start the improvements file today, because the shelter only exists if you can prove it.
This is general information, not tax advice. Put your actual numbers in front of your CPA before you list.
If you are preparing to sell a long-held home in the Carolinas and want the basis and exclusion math run on your real numbers before you list, that read is complimentary.
All Field Notes