Capital Gains on a Home Sale
Most home sellers owe $0: the Section 121 exclusion shields $250,000-$500,000 of gain. Our model shows where tax starts - near $950,000 homes on a 10-year stay.
Most home sellers pay no capital gains tax at all. The Section 121 exclusion shields $250,000 of gain for a single filer and $500,000 for a married couple filing jointly, and our model’s default sale doesn’t come close: the $420,000 home is worth about $564,000 after ten years at 3% appreciation, and after selling costs the taxable gain is about $110,600 — tax owed, $0. In our model, a single ten-year seller doesn’t owe a dollar below roughly a $950,000 purchase price. The tax that actually shows up in rent-vs-buy math is the one on the renter’s portfolio — and honest models charge it.
How does the Section 121 exclusion work?
Sell your main home and you can exclude up to $250,000 of gain from capital gains tax — $500,000 if married filing jointly — provided you owned the home and lived in it as your principal residence for at least two of the five years before the sale, and haven’t used the exclusion in the two years prior. The two years don’t need to be continuous, and partial exclusions exist for moves forced by work, health, or unforeseen circumstances.
Two details people miss. The exclusion amounts were set in 1997 and are not indexed to inflation — proposals to raise them (to $500,000/$1 million) have been introduced but not enacted as of 2026, so the thresholds quietly tighten every year as prices grow. And the gain is measured against your basis — what you paid plus qualifying improvements — with selling costs reducing the amount realized. Our model computes it exactly that way: sale price, minus selling costs at its 6% default, minus what you paid.
Will you actually owe tax when you sell?
Almost certainly not, at typical prices and stays. Run the model’s definition of taxable gain forward at its 3% default appreciation and the numbers are hard to reach:
| Scenario (3% appreciation, 6% selling costs) | Taxable gain first exceeds the exclusion |
|---|---|
| $420,000 home, single ($250,000 exclusion) | Year 18 |
| $420,000 home, married ($500,000 exclusion) | Year 29 |
| Ten-year stay, single | Only above a ~$950,000 purchase price |
| Ten-year stay, married | Only above a ~$1.9M purchase price |
Even our expensive-city scenario — a $1.1M home held 15 years by a married couple — clears the exclusion by so little that the model’s tax bill is about $1,600: the realized gain after selling costs is roughly $511,000, only $10,900 of it taxable, at the 15% capital gains rate. The exclusion is why home-sale tax, which sounds terrifying, almost never moves a rent-vs-buy verdict.
Who pays capital gains tax in rent vs buy — the owner or the renter?
The renter — and calculators that skip this quietly flatter renting. Our model invests both sides’ spare cash and settles both portfolios at the end of the stay, and portfolio gains get no Section 121: they’re taxed at the capital gains rate (15% default) on the way out. The owner’s home gain is usually fully excluded; the renter’s brokerage gain never is. This is one of buying’s genuinely underrated advantages: a primary residence is one of the few places US tax law lets a large capital gain go entirely untaxed.
It isn’t enough to flip the default verdict — at August 2026 rates, renting and investing still wins our default scenario by about $67,000 after the renter’s tax bill is paid — but it’s real money in the renter’s column of the ledger, and any comparison that taxes neither side or both sides equally is quietly wrong. If home gains were taxed like stock gains, our default ten-year sale would owe about $16,600 instead of nothing.
What should you actually do with this?
Three practical rules fall out of the math. If you’re anywhere near the exclusion — long stay, expensive market, or single filer in an appreciating neighborhood — keep records of capital improvements, because every documented dollar raises your basis and shrinks the taxable gain. If you’re a single filer sitting on a gain approaching $250,000, the calendar matters: the exclusion is per-sale, and marrying, or selling before the gain grows past the line, changes the bill. And if a big excluded gain is part of why you’re selling, remember what selling really costs — the 6% exit fee is charged on the whole price, not the gain, and it usually dwarfs the tax.
Run your own numbers
The calculator applies the Section 121 exclusion at sale automatically — set your filing status, price, and stay length, and the final-year settlement handles the rest, including the capital gains tax on the renter’s portfolio. The exact formula is documented on the methodology page. For the bigger picture of what taxes do and don’t change in this decision, see does the mortgage interest deduction still matter and the SALT cap guide.
Jonathan Nyst built RentVsBuyMath as an independent project — for himself first. He spent fifteen years marketing financial products, in banking, fintech and payments at CMO level, which is exactly how he knows what a lead-generation calculator looks like from the inside. This is the calculator without the funnel: he is not a lender, broker or agent, the site takes no referral fees, and nobody is paid more if you decide to buy. The whole model is public — every formula documented on the methodology page, the engine MIT-licensed, covered by automated tests including scenarios computed by hand to check it.
Does the Mortgage Interest Deduction Still Matter? For Most Buyers, No
Year-one interest on the default scenario is about $21,700 — under the $32,200 joint standard deduction, its tax value is zero. Who still benefits, computed.
TaxesThe SALT Cap and Rent vs Buy
The 2026 SALT cap is $40,400, phasing down above $505,000 of income. What it changes in rent-vs-buy math: nothing on a $420,000 home, about $21,000 at $1.1M.