Key takeaways
- If you owned and lived in your home for at least 2 of the 5 years before the sale, you can generally exclude up to $250,000 of gain, or $500,000 if you're married and file jointly.
- California follows the same federal exclusion, but California taxes any gain above it as ordinary income, with no lower capital gains rate.
- Your gain is the sale price minus selling costs and your adjusted basis, and improvements like a new roof or a kitchen remodel raise your basis.
- If escrow sends you a Form 1099-S, you must report the sale even when all of the gain is excluded.
- California escrow generally withholds 3 1/3% of the sales price unless an exemption applies, and a principal residence is one of the exemptions on Form 593.
Do I owe tax when I sell my home in Los Angeles?
Often, no. The IRS lets you exclude up to $250,000 of gain from the sale of your main home from your income, or up to $500,000 if you file a joint return with your spouse. You only owe federal tax on gain above that amount, or on gain that doesn't qualify. With LA home values, though, long-time owners can have gains larger than the exclusion, so it's worth running the numbers before you list.
How do I qualify for the $250,000 or $500,000 exclusion?
You generally need to meet three tests, measured over the 5 years ending on the date of sale:
- Ownership: you owned the home for at least 24 months.
- Use: you lived in it as your main home for at least 24 months. The months don't have to be in a row.
- Look-back: you didn't exclude gain from selling another home in the 2 years before this sale.
For the full $500,000 on a joint return, either spouse can meet the ownership test, but both spouses must meet the use test. The IRS also lists automatic disqualifications, such as a home you acquired through a like-kind (1031) exchange within the past 5 years.
What if I haven't lived there for two years?
You may still get a partial exclusion if the main reason you sold was a work-related move, a health reason, or an unforeseeable event. IRS Publication 523 gives examples, including a new job at least 50 miles farther from the home than your old one, a death, a divorce or legal separation, or damage to the home from a disaster. The partial exclusion is generally prorated based on how much of the 2-year period you met.
How do I figure my gain?
Your gain is the amount you realized minus your adjusted basis:
- Amount realized is the sale price minus selling expenses, such as the real estate agent's commission, advertising, and legal fees.
- Adjusted basis starts with what you paid for the home, plus certain closing costs from your purchase and the cost of improvements that are still part of the home.
Improvements are things that add value, extend the home's life, or adapt it to new uses, like an addition, a new roof, central air, a remodeled kitchen, or a swimming pool. Ordinary repairs and maintenance, like painting or fixing a leak, don't count. Basis can also go down, for example by depreciation you claimed or could have claimed for a home office or rental use, or by energy credits you received for improvements. If you inherited the home, your basis is generally its fair market value on the date of death, not what the original owner paid.
This is where records matter most. Permits, contracts, and receipts for past projects can reduce a taxable gain, so start gathering them now.
Does California tax my home sale differently?
California conforms to the federal home sale exclusion, so the same $250,000 and $500,000 amounts and the same 2-out-of-5-year rules apply on your state return. The big difference is the rate on any gain above the exclusion. According to the Franchise Tax Board, California doesn't have a lower rate for capital gains, and all capital gains are taxed as ordinary income.
In California, the buyer or escrow generally withholds 3 1/3% of the sales price for the FTB unless the seller qualifies for an exemption. You claim an exemption on Form 593, and one of the listed exemptions is for property that qualifies as your principal residence under the federal rules, or that was last used as your principal residence. A rental, vacation home, or second home doesn't qualify for that exemption. If tax is withheld, you claim it on your California return.
Do I have to report the sale if no tax is due?
Sometimes. If you receive Form 1099-S, Proceeds From Real Estate Transactions, you must report the sale on Form 8949 and Schedule D even if all of your gain is excluded. You also must report it if part of your gain is taxable. If neither is true, the IRS says you generally don't need to report the sale. You can't deduct a loss on the sale of your personal home.
Does it matter if I close in December or January?
Yes, because the closing date decides which tax year the sale belongs to. The date of sale is generally the earlier of when title transfers or when the burdens and benefits of ownership shift to the buyer, and it appears in box 1 of Form 1099-S. If you expect a taxable gain, a December closing puts it on your 2026 return, while a January closing puts it on your 2027 return. It also affects your 2-out-of-5-year count, so check your dates if you're close to the 24-month mark. If you'll have a taxable gain, the IRS notes you may need to raise your withholding or make estimated tax payments.
Quick FAQ
Can I use the home sale exclusion more than once?
Yes, but generally only once in any 2-year period, and each sale must meet the ownership and use tests on its own.
Can I exclude gain on a rental property or second home?
Not as a general rule, because the exclusion is for your main home. If a former rental later became your main home, or your main home later became a rental, special rules decide how much of the gain can be excluded, and depreciation you took after May 6, 1997 can't be excluded.
Does California use the same $250,000 and $500,000 exclusion?
Yes. California conforms to the federal exclusion, but it taxes any gain above the exclusion as ordinary income.
How long should I keep home records?
The IRS says to generally keep records that document your basis until 3 years after the due date of the return for the year you sell the home.
Sources
- IRS — Topic no. 701, Sale of your home — https://www.irs.gov/taxtopics/tc701
- IRS — Publication 523, Selling Your Home — https://www.irs.gov/publications/p523
- FTB — Income from the sale of your home — https://www.ftb.ca.gov/file/personal/income-types/income-from-the-sale-of-your-home.html
- FTB — Capital gains and losses — https://www.ftb.ca.gov/file/personal/income-types/capital-gains-and-losses.html
- FTB — Publication 1001, Supplemental Guidelines to California Adjustments (2025) — https://www.ftb.ca.gov/forms/2025/2025-1001-publication.pdf
- FTB — 2026 Instructions for Form 593, Real Estate Withholding Statement — https://www.ftb.ca.gov/forms/2026/2026-593-instructions.html
- FTB — Publication 1016, Real Estate Withholding Guidelines — https://www.ftb.ca.gov/forms/misc/1016.html
This article is general information, current as of November 9, 2026, and isn't tax advice for your situation. Tax law changes; results depend on your facts, and no particular outcome is guaranteed.
Talar Hanounek, CPA is a California-licensed CPA (license #161519) who prepares individual tax returns, including Schedule C returns for self-employed people and small business owners, for clients across Los Angeles and the San Fernando Valley. More about Talar.
If you're thinking about selling and want to know what your gain might look like, I offer a free first consultation by phone, video or in person at my Burbank office. Bring your purchase papers and any improvement records, and we can go through them together.
Questions about your own taxes? Call (818) 293-0453
Talar Hanounek, CPA, prepares individual and self-employed (Schedule C) returns from her Burbank office, by phone, video or in person. She speaks English, Armenian and Arabic. The first consultation is free.