Most people who sell a home they have lived in for years owe little or no tax, because federal law lets you exclude up to $250,000 of profit ($500,000 for married couples filing jointly). Whatever is left is taxed three ways if you live in the city: by the IRS, by New York State and by New York City.
At a glance
- Section 121 exclusion
- $250k / $500k
- Single / married filing jointly
- Ownership and use test
- 2 of 5 years
- Both, before the sale date
- 2026 federal long-term rates
- 0% / 15% / 20%
- NIIT
- 3.8%
- Above $200k / $250k MAGI
- NYS 2026 rates
- 3.9%–10.9%
- Gains taxed as ordinary income
- NYC resident rates
- 3.078%–3.876%
How the calculation works
- Amount realized = sale price − selling costs (commission, seller transfer taxes, legal fees).
- Adjusted basis = purchase price + purchase closing costs + capital improvements − depreciation you claimed.
- Gain = amount realized − adjusted basis. A loss on a personal home is not deductible.
- Exclusion: subtract up to $250,000 or $500,000 if you meet the 2-of-5-year tests, or a partial amount if you sell early for a qualifying reason. Depreciation claimed after May 6, 1997 cannot be excluded.
- Federal tax: the taxable gain is stacked on top of your other taxable income. Depreciation recapture is taxed at your regular rate up to 25%; the rest at 0%, 15% or 20% depending on where it lands.
- NIIT: 3.8% on the smaller of the taxable gain or the amount your modified AGI exceeds the threshold.
- New York: the same taxable gain is added to your New York income and taxed at your state rates (including the high-income recapture above $107,650 of NY adjusted gross income), plus city rates if you are an NYC resident.
Worked example
A married couple sells their Queens house for $1,400,000 in 2026. They bought it for $650,000 nine years ago, paid $15,000 in closing costs, spent $60,000 on a new kitchen and roof, and pay $95,000 to sell. Their other income is $180,000.
| Line | Amount |
|---|---|
| Amount realized ($1,400,000 − $95,000) | $1,305,000 |
| Adjusted basis ($650,000 + $15,000 + $60,000) | $725,000 |
| Gain | $580,000 |
| Exclusion (married filing jointly) | −$500,000 |
| Taxable gain | $80,000 |
| Federal at 15% (taxable income already above $98,900) | $12,000 |
| NIIT: 3.8% × ($260,000 MAGI − $250,000) | $380 |
| NYS: added tax on $80,000 (5.9% bracket, plus the high-income recapture) | $5,229 |
| NYC: $80,000 at 3.876% | $3,101 |
| Total | $20,710 |
That is about 3.6% of the $580,000 profit. The NYS line is more than a flat 5.9% because New York phases out the benefit of its lower brackets once income passes $107,650; the calculator uses the state's 2026 worksheets for this. Without the $60,000 of improvements and the purchase closing costs in their basis, the taxable gain would be $75,000 higher, so keep those receipts.
Rules that change the answer
- The 2-year look-back. You can use the exclusion only once in any 2-year period.
- Married couples. For the $500,000 limit, either spouse can meet the ownership test but both must meet the use test.
- Different 2 years. The 2 years of ownership and the 2 years of use do not have to be the same period, so years you rented the home before buying it can count toward the use test.
- Partial exclusion. Moving for a job at least 50 miles farther away, for health, or after an unforeseeable event can earn a pro-rated exclusion.
- Rented periods. Depreciation is always taxable, and time after 2008 when the home was not your main home can reduce the exclusion. This tool does not model that second rule.
- Holding period. If you owned the home one year or less, the gain is short-term and taxed at ordinary rates.
What to do next
Work out your selling costs with the seller net proceeds calculator and seller transfer tax calculator, then read capital gains tax when you sell your home. A tax professional can confirm your basis and exclusion before you file.