Home Sale Capital Gains Calculator 2026

How the Section 121 home sale exclusion works in 2026

Most home sale calculators tell you what lands in your bank account. This one tells you what lands on your tax return: the Section 121 exclusion you actually qualify for, the depreciation the exclusion cannot touch, and the bracket your remaining gain falls into.

IRC Section 121 lets you leave up to $250,000 of gain out of income when you sell your main home, or up to $500,000 on a joint return. Two tests gate it, both measured over the 5 years ending on your closing date. The ownership test asks for 24 months of ownership. The use test asks for 24 months of living in the home as your principal residence. The months do not have to run back to back, and the months you owned it do not have to be the same months you lived in it, which is what lets a landlord who moved in for two years still qualify.

On a joint return the split matters. Section 121(b)(2)(A) needs only one spouse to meet the ownership test, but it needs both to meet the use test before the cap reaches $500,000. If only one spouse lived there, Section 121(b)(2)(B) falls back to the sum of the individual limits, which is $250,000 plus $0. Section 121(b)(3) then adds a frequency limit: you can only claim the exclusion once in any two-year period.

Those dollar caps are statutory and have never been indexed for inflation. They have been $250,000 and $500,000 since the Taxpayer Relief Act of 1997, while the median US home price has more than tripled, which is why a rule written to exempt almost everybody now catches a growing share of long-time owners in expensive markets. The One Big Beautiful Bill Act (P.L. 119-21) reshaped brackets and deductions for 2026 but left Section 121, Section 1250 and Section 1411 alone.

Working out your gain: amount realized minus adjusted basis

Gain is not sale price minus purchase price. Start with the amount realized, which is the contract price less your selling costs: agent commission, legal and title fees, escrow charges, advertising and any points you paid on the buyer's behalf. Then build the adjusted basis: purchase price, plus the settlement costs you capitalized at purchase, plus every capital improvement, minus depreciation, casualty losses and certain credits.

An improvement adds value, extends the life of the property or adapts it to a new use: an addition, a new roof, a kitchen remodel, replacement windows, a new HVAC system, a finished basement. A repair keeps it in ordinary working order: patching, painting, fixing a leak. Pub. 523 Table 3 draws the line, and only improvements make it into basis. Keep the receipts. Every improvement receipt you lost is a dollar of gain you will be taxed on.

Take the defaults on this page. A $750,000 sale with $45,000 of selling costs gives a $705,000 amount realized. A $400,000 purchase plus $60,000 of improvements gives a $460,000 basis. The realized gain is $245,000, which sits under the $250,000 single-filer cap, so the whole thing is excluded and the federal tax is $0. Drop the improvements to $0 and the gain becomes $305,000, of which $55,000 is taxable. That is the difference a shoebox of receipts makes.

When you sold early: the reduced (partial) exclusion

Failing a test does not automatically cost you the whole exclusion. Treas. Reg. Section 1.121-3 grants a reduced maximum exclusion when the primary reason you sold was a change in place of employment, a health reason, or an unforeseen circumstance. Each has safe harbors. Work qualifies when the new job site is at least 50 miles further from the old home than the old job site was. Health qualifies when a physician recommends the move for the care or treatment of you, your spouse or certain family members. The enumerated unforeseen circumstances cover death, divorce or legal separation, becoming eligible for unemployment compensation, multiple births from a single pregnancy, involuntary conversion, and natural or man-made disaster.

Here is the part that trips people up: the fraction reduces the cap, not the gain. Take a single filer who owned the home 18 months, lived in it 14, and sold for a qualifying reason. The shortest qualifying period is 14 months, so the fraction is 14 divided by 24, and the cap becomes $145,833. That cap is then applied to the entire eligible gain. Prorating the gain instead and applying the full $250,000 gives a different, lower answer for every gain above $145,833.

Pub. 523 Worksheet 1 uses the shortest of three periods, not two: months owned, months used, and months since the most recent sale for which you claimed the exclusion. This tool checks all three, which is how the once-every-two-years rule gets modeled correctly. Without a qualifying reason, a failed test means a $0 exclusion, and the whole gain is taxable. As an accepted simplification, the fraction here uses whole months over 24 rather than days over 730, a difference of at most one month of proration.

Depreciation recapture, the 25% rate, and the 3.8% NIIT

If you ever claimed a home office or rented the place out, Section 121(d)(6) carves that depreciation out of the exclusion. Depreciation allowed or allowable after May 6, 1997 becomes unrecaptured Section 1250 gain, it comes off the top of your gain first, and the exclusion never reaches it. Subtract the exclusion first and you understate the bill for every seller who ever worked from a spare bedroom.

The 25% figure attached to that slice is a ceiling, not a flat rate. Section 1(h)(1)(E) taxes unrecaptured Section 1250 gain at your ordinary rates but never above 25%, so a modest-income seller pays 10% or 12% on it. This page computes both and charges the lower one, then shows you the rate that actually applied.

Whatever survives the exclusion is long-term gain, taxed at 0%, 15% or 20% depending on where it lands once stacked on top of your other taxable income. The Schedule D Tax Worksheet puts the 25% slice below the 0/15/20% gain in that stack, so the starting point for the bracket walk is your other income plus the recapture. Getting that order wrong changes the answer for anyone straddling the 0% breakpoint. The 2026 breakpoints come from Rev. Proc. 2025-32: the 0% band runs to $49,450 of taxable income for a single filer and $98,900 on a joint return.

Last comes the 3.8% net investment income tax under Section 1411, charged on the lesser of your net investment income and the amount your modified AGI exceeds $200,000 (single or head of household), $250,000 (married filing jointly) or $125,000 (married filing separately). Excluded gain is out of gross income, so Treas. Reg. Section 1.1411-4(d)(4)(i)(A) keeps it off both sides of that test. A fully excluded sale creates no surtax at any income level. Selling a second home, a rental or investment property instead? None of the Section 121 rules on this page apply, and the Capital Gains Tax Calculator is the tool for that job.

Everything here is an estimate and not tax or legal advice. Check it against IRS Publication 523 and your own closing statements, and talk to a tax professional before you file.