What Are the Capital Gains Rules When Selling a Home in San Jose?

What are the capital gains rules when selling a home in San Jose?

If you’ve owned and lived in your San Jose home for at least two of the last five years, you may qualify to exclude up to $250,000 (or $500,000 for married couples) of capital gains from your taxable income under the IRS home sale exemption.

Understanding Capital Gains Tax on Home Sales

Capital gains tax is what you pay on the profit when you sell your home for more than you paid for it. In San Jose—where home values have appreciated dramatically over the last decade—this tax can have a big impact. Knowing the rules can help you keep more of your money.

When you sell your home in San Jose, calculating your capital gains depends on your home's purchase price, your selling price, and any improvements you made while living there. This is especially important in San Jose’s hot real estate market, where many longtime homeowners have seen property values skyrocket.

What Counts as a Capital Gain?

Capital gain is the difference between your home's adjusted basis (what you paid plus improvements and certain costs) and the sale price. If that number is positive, it’s a gain. If it's over the IRS exclusion limits, it may be taxable.

IRS Exclusion Limits

If you qualify, you can exclude up to:

- $250,000 of gain if you’re single

- $500,000 if you’re married and file jointly

To qualify, you must have owned and used the home as your primary residence for at least two of the last five years.

Example from San Jose

Let’s say you bought your Cambrian Park home in 1999 for $450,000. You sell it in 2025 for $1.65 million. You’ve lived there the whole time and put $100,000 into upgrades. Your adjusted basis is $550,000. Your gain is $1.1 million. If you're married, $500,000 of that can be excluded, leaving $600,000 subject to tax—unless you qualify for further deductions or deferment.

Ways to Reduce or Defer Capital Gains

- Keep detailed records of home improvements and selling expenses

- Explore 1031 exchanges (for investment properties only)

- Consult a tax advisor to explore installment sales or trust options

California State Taxes

California does not have a separate capital gains tax rate—your gain is taxed as regular income. That means high-income sellers in San Jose may owe both federal and state taxes on large gains.

Important Disclaimer

Tax rules can be complex and change frequently. Kip and Tam of The Barnard Group are real estate professionals—not tax advisors. Always consult a qualified CPA or tax professional to review your unique situation.

Why Work With Kip and Tam When Selling in San Jose?

With over 35 years of combined experience, Kip and Tam know how to navigate the financial, legal, and strategic aspects of selling a home in San Jose. They can connect you with trusted local tax professionals and help you prepare your home for a sale that minimizes risk and maximizes return.

Whether you're in Almaden Valley, Willow Glen, or the Cambrian area, they bring local knowledge that makes a difference.

Next Steps

If you're thinking about selling your San Jose home and want to understand how capital gains tax might affect you, start by getting a clear estimate of your potential gain. Kip and Tam can help you run the numbers and point you toward the right financial guidance to keep your sale on track.

Contact Kip and Tam

For honest, experienced advice about selling your home in San Jose, reach out to Kip and Tam at The Barnard Group at Compass. Visit www.kipandtam.com to schedule a free consultation.