Capital Gains on a Primary Residence: What Applies Today

Under current federal law, homeowners may exclude a portion of capital gains when selling a primary residence:

• Up to $250,000 of gain for a single filer
• Up to $500,000 of gain for married couples filing jointly

These exclusions apply if the home has been used as a primary residence for at least two of the past five years. Any gain above these thresholds may be subject to federal capital gains tax, and in California, capital gains are taxed as ordinary income at the state level.

For homeowners who purchased many years ago, appreciation alone can push gains well beyond these limits, which is why capital gains exposure plays such a meaningful role in selling decisions.

Federal Policy Conversations Currently Being Discussed

At the federal level, there are ongoing discussions and proposed bills related to capital gains and home sales. These proposals are not law, but they are part of the national conversation.

Topics being discussed include:

• Increasing the current capital gains exclusion limits on primary residence sales
• Indexing exclusion limits to inflation
• Reducing the lock in effect that discourages long time homeowners from selling

None of these proposals have been finalized or enacted, but they are contributing to uncertainty for homeowners who are weighing whether to sell now or wait.

California State Level Programs and Policy Discussions

California does not currently offer a capital gains exclusion specific to seniors. However, there are existing programs and active discussions that affect overall tax exposure and housing decisions.

Proposition 19

Proposition 19 allows homeowners age 55 and older to transfer their existing property tax base to a replacement primary residence anywhere in California, subject to certain conditions. This can significantly reduce future property tax increases when moving.

Property Tax Postponement Program

California offers a property tax postponement program for qualifying seniors and individuals with disabilities. This program allows eligible homeowners to defer current year property taxes on a primary residence.

Ongoing State Discussions

There are active conversations in California around property taxes, transfer taxes, and broader tax policy. While these discussions do not change capital gains rules today, they are part of why many homeowners are taking a wait and see approach before selling.

Why This Matters in Today’s Housing Market

Because many long time homeowners are sitting on significant equity, they are not forced to sell. Decisions are increasingly driven by lifestyle goals, long term financial comfort, and clarity around tax exposure.

Some homeowners choose to sell because it supports a next chapter. Others choose to stay put because selling does not yet improve their quality of life. Both can be thoughtful decisions when made with full information.

A Thoughtful Next Step

If you are considering selling, downsizing, relocating, or simply want to understand how these rules apply to your specific situation, the most important step is getting informed.

I am always happy to walk through options, timelines, and considerations so you can decide what makes sense for you.