Scott Stollar is a REALTOR® (DRE #02136497) licensed since 2021, with 7 years of pre-license experience in San Diego real estate, focused on inherited and probate homes.
Capital gains tax selling a home comes down to your profit, not your sale price: if you sell for $1,000,000 and your basis is $200,000, the taxable gain is $800,000, not the full sale amount. A primary residence can often exclude up to $250,000 (or $500,000 for a married couple) of that gain under Section 121, and a 1031 exchange can defer tax on an investment property, though it doesn’t eliminate it.
When people think about selling a home, they usually focus on the sale price.
But one of the first questions that eventually surfaces is quieter, and often more expensive:
“What about the taxes?”
Many long-time homeowners and beneficiaries don’t think about capital gains until they’re already in escrow. By then, most of the planning opportunities are gone. This guide explains how capital gains taxes actually work, what strategies exist, and why timing matters more than people expect.
At its simplest, capital gains tax is a tax on profit.
If you sell a home for $1,000,000 and originally bought it for $200,000, the gain is $800,000.
That number (not your mortgage balance, not what you walk away with) is what the IRS and the state look at.
They don’t factor in:
That’s why understanding capital gains early is so important.
Capital gains planning depends on:
There is no “best” option, only what fits your situation.
The most commonly known strategy is the Section 121 exclusion.
If you’ve lived in the home as your primary residence for two of the last five years, you may exclude:
In many markets, this still protects sellers well.
In California, where appreciation can be dramatic, it often isn’t enough.
And it does not apply to:
Second properties
A 1031 exchange allows you to defer capital gains by reinvesting proceeds into another investment property.
Key points:
It’s a powerful tool, but it’s not a tax elimination strategy. Taxes are deferred, not erased.
Some sellers don’t want to keep managing property, even passively.
In certain cases, proceeds can be reinvested into more passive investment structures. These require:
They are not for everyone, but for those with very large gains, they can open meaningful options.
One of the simplest (and most missed) strategies is reducing the gain itself.
You may be able to deduct:
Documentation matters. Receipts matter. Memory sometimes helps, but proof is best. Many long-time owners with six-figure gains can significantly reduce exposure just by organizing their history.
The most expensive mistake is waiting until after escrow closes to think about capital gains.
At that point, options narrow quickly.
Planning early allows you to:
Decide what actually supports your next chapter
If you’re selling a home, whether inherited or owned for decades, and want a clear answer before decisions become permanent, an Inherited Home Strategy Session can help you see the full picture. It’s not about selling faster.
It’s about selling smarter, or choosing a different path entirely.
Book your FREE Inherited Home Strategy Session here: click here
If your specific situation involves an inherited property, our deeper breakdown of capital gains on an inherited home in San Diego walks through the step-up-in-basis math in more detail. You can also grab the Capital Gains Estimate worksheet or download the Inherited Home Playbook to bring your own numbers to the conversation.
Capital gains tax is a tax on profit, not on the sale price itself. If you sell a home for $1,000,000 and originally bought it for $200,000, the taxable gain is $800,000. That number, not your mortgage balance or what you walk away with after paying it off, is what the IRS and the state look at.
Yes, the Section 121 exclusion. In many markets it protects sellers well, but in California, where appreciation can be dramatic, it often isn’t enough on its own, and it doesn’t apply to second properties or investment real estate.
A 1031 exchange lets you defer capital gains by reinvesting proceeds into another investment property. It’s a powerful tool, but it’s not a tax elimination strategy. Taxes are deferred, not erased, so eventually they become due unless you keep exchanging.
How the step-up in basis works when you inherit a San Diego home, how to establish date-of-death value, and what changes if you rent it out first.
The 7 steps to sell a house held in a trust in California, from confirming title to closing escrow, plus the Heggstad petition fix for trusts.
