Updated October 29, 2026
When you sell your main home, federal law lets you exclude up to $250,000 of gain from tax, or $500,000 for a married couple filing jointly, if you've owned and lived in the home for at least two of the last five years (IRS Publication 523). California follows the same exclusion. Gain above it is taxed federally at long-term capital gains rates, mostly 15% or 20% for a large gain, plus 3.8% for higher incomes, and California taxes it as ordinary income at up to 13.3%. If you bought your Irvine home many years ago, your gain may be larger than the exclusion, so work out your number with your own CPA before you list.
How the gain is figured
Step | What goes in it |
|---|---|
Amount realized | Sale price minus selling costs: agent commissions, escrow, title and other seller closing costs |
Adjusted basis | What you paid, plus the closing costs you paid when you bought (not loan costs), plus capital improvements, minus any depreciation you took |
Gain | Amount realized minus adjusted basis |
Taxable gain | Gain minus your exclusion ($250,000 or $500,000) |
Improvements are work that adds value, extends the home's life or adapts it to a new use: an addition, a kitchen remodel, a new roof. Repairs and maintenance, like painting or fixing a leak, don't count (Pub 523). Keep receipts for every improvement; they lower your tax only if you can show them.
A worked example
This is a simplified example. A married couple, both under 65, filing jointly, bought an Irvine home in 2012 for $700,000 and paid $6,000 in closing costs. Over the years they spent $120,000 on a kitchen remodel, a new roof and new windows. They never rented it out and qualify for the full exclusion. They sell in 2026 for $1,900,000. Apart from the sale, they have about $200,000 of income and no other gains or losses, or about $168,000 after the $32,200 standard deduction.
Amount | |
|---|---|
Sale price | $1,900,000 |
Selling costs (assumed at 6% for this example) | −$114,000 |
Amount realized | $1,786,000 |
Adjusted basis ($700,000 + $6,000 + $120,000) | $826,000 |
Gain | $960,000 |
Exclusion, married filing jointly | −$500,000 |
Taxable gain | $460,000 |
Estimated tax on the $460,000:
Tax | How it applies | Estimate |
|---|---|---|
Federal capital gains | 15% on the gain up to $613,700 of total taxable income, 20% above it (2026 brackets, Rev. Proc. 2025-32) | about $69,700 |
Net investment income tax | 3.8% on the taxable gain, to the extent income is over $250,000 for a married couple (IRS) | about $15,600 |
California | Taxed as ordinary income; here it falls in the 9.3% bracket (FTB) | about $42,800 |
Total | about $128,000 |
The selling costs alone cut the taxable gain by $114,000, and the improvements by another $120,000. Your numbers will differ with your income, deductions and filing status, so take this as a way to see how the pieces fit, not as tax advice. Before every listing we get an estimate of closing costs from escrow and give the seller a net sheet, which gives your CPA the selling-cost figure.
Who gets the full exclusion
- Ownership and use. You owned the home and lived in it as your main home for at least 24 months of the 5 years before the sale. The months don't have to be in a row.
- Married couples. Either spouse can meet the ownership test, but both must meet the use test to get $500,000. If only one does, that spouse can get up to $250,000.
- Once every two years. You can't have excluded gain on another home sale in the two years before this one.
- Partial exclusion. If you sell early mainly because of a job change, a health reason or another unforeseen event, you may get part of the exclusion.
When it gets more complicated
- The home was a rental. Depreciation you took (or could have taken) after May 6, 1997 is never excluded and is taxed at up to 25% (IRS Topic 409). If you rented the home out before you moved in, part of the gain may not qualify either. Time as a rental after you move out, within the five-year window, doesn't reduce the exclusion. See sell or rent your Irvine home.
- You inherited the home. Your basis generally becomes the home's value on the date of death. In California, when one spouse dies, both halves of community property can get that new basis (IRS Publication 555). See selling an inherited home in California.
- It's an investment property. The home-sale exclusion doesn't apply, but a 1031 exchange can defer the gain. A primary residence doesn't qualify for a 1031 (IRS). See 1031 exchanges for Irvine rental sellers.
- You're divorcing. See selling your Irvine home during a divorce.
The forms at closing
Escrow will almost certainly send you a Form 1099-S. It can be skipped only when the sale price is $250,000 or less ($500,000 for a married seller) and the seller signs a certification (IRS instructions for 1099-S), which rarely happens in Irvine. Getting a 1099-S doesn't mean you owe tax; you report the sale and claim the exclusion on your return.
The $250,000 and $500,000 amounts haven't changed since 1997 and aren't adjusted for inflation. The 2025 federal tax law didn't change them. As of October 2026, bills in Congress to raise them hadn't passed.
FAQ
Do I pay capital gains tax when I sell my house in Irvine?
Only on gain above your exclusion: $250,000 if single, $500,000 if married filing jointly, as long as you've owned and lived in the home for two of the last five years. California uses the same exclusion.
How much is California capital gains tax on a home sale?
California has no separate capital gains rate. The taxable gain is added to your income and taxed at your regular rate, up to 13.3%.
What reduces capital gains on a home sale?
Your selling costs, the closing costs you paid when you bought, and the capital improvements you made. Repairs and maintenance don't count.
Can I avoid capital gains by buying another house?
Not for a main home. That rule ended in 1997. A 1031 exchange works only for investment or business property.
Planning to sell? We'll get an escrow estimate of your closing costs and a net sheet to take to your CPA. Get your home value.
About Irene and Ricky Zhang: RealTrends Verified ranks Irene and Ricky Zhang the #1 small team in Irvine by both sales volume and transaction sides (2026 City Rankings, based on 2025 production). Tax rules are from IRS and California FTB guidance as of October 2026. This article is general information, not tax advice; talk to your own CPA or tax adviser.
