Selling Your Saratoga Home? What You Should Know About Capital Gains Tax Exclusion

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In a market like Saratoga—where long-term ownership often means significant equity gains—knowing how to navigate a home sale with financial strategy in mind can make all the difference. At Avenida, we believe in empowering our clients with clarity and foresight, especially when opportunities like the capital gains exclusion come into play.

If you’ve owned your home for several years, there's a key tax advantage that may help you retain more of your hard-earned equity: the Section 121 Capital Gains Tax Exclusion.

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What Is the Capital Gains Tax Exclusion?

Under the IRS tax code (Section 121), homeowners who sell their primary residence may be eligible to exclude up to:

• $500,000 in capital gains if married and filing jointly
  
  
• $250,000 if single or filing separately
  
  

This means that if your home has appreciated over time, you may be able to pocket a substantial amount of that gain without paying federal capital gains taxes.

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Who Qualifies?

To take advantage of this exclusion, you’ll need to meet two key requirements:

1. Ownership Test

You must have owned the home for at least two of the past five years before the sale.

2. Use Test

The home must have been your primary residence for at least two of the past five years. These do not need to be consecutive years.

You can only use this exclusion once every two years, so timing is important.

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Why It Matters in Saratoga

Saratoga homes have seen tremendous appreciation over the past two decades. What was once a modest investment is now, in many cases, a multi-million-dollar asset.

But with appreciation comes potential tax exposure.

Say you purchased your home for $800,000 and sell it today for $2.1 million. Without any exclusions, the $1.3 million in gain could be subject to capital gains tax. But if you’re married and qualify under Section 121, you may be able to exclude $500,000 of that gain—potentially saving tens of thousands of dollars in federal taxes.

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A Few Nuances to Know

• Improvements Count: Major improvements (like a kitchen remodel or room addition) can be added to your cost basis, potentially reducing your taxable gain even further.
  
  
• Partial Exclusions: In some cases—like a job relocation or health issue—you may qualify for a partial exclusion even if you don’t meet the full 2-out-of-5-year requirement.
  
  
• State Taxes Apply: California taxes capital gains as regular income and does not offer a separate exclusion or preferential rate, so the state tax burden may still apply.
  
  

Planning Ahead

Understanding how and when to take advantage of this exclusion is just one piece of a smart home sale strategy. Whether you’re planning to downsize, move closer to family, or reinvest in another property, having a trusted team on your side can help you make confident, informed decisions.

At Avenida, we guide clients through every phase of their ownership journey—not just the sale. Our advisor-led model ensures you’re not navigating big decisions alone, especially when the financial implications are significant.

If you're considering selling your Saratoga home and want to understand what the process could look like—from marketing to post-sale strategy—our team is here to help you start the conversation, free from pressure and tailored to your goals.

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Disclaimer

This article is provided for general informational purposes only and does not constitute legal, tax, or financial advice. Please consult a qualified professional regarding your specific circumstances. Avenida is not responsible for decisions made based on this content.

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