Capital Gains Tax on Selling Your Home: CT & FL Guide

Quick answer: Most homeowners pay no federal capital gains tax when they sell their main home. The IRS lets you exclude up to $250,000 of gain, or $500,000 for married couples filing jointly. To qualify, you must have owned the home and lived in it as your main residence for at least 2 of the last 5 years. Those limits haven't changed since 1997, so more long-time owners are going over them.

How the home sale exclusion works

Under IRS rules (Topic 701 and Publication 523):

• Ownership test: you owned the home for at least 24 months in the 5 years before the sale.

• Use test: you lived in it as your principal residence for at least 24 months in those 5 years. The months don't have to be in a row.

• Once every two years: you generally can't use the exclusion if you used it on another home sale in the prior two years.

• Married couples: either spouse can meet the ownership test, but both must meet the use test to get the full $500,000.

Gain is roughly your sale price minus selling costs, minus your "basis": what you paid plus the cost of capital improvements, such as a new roof, an addition or a kitchen remodel. Keep those receipts.

A simple example

A married couple bought a Connecticut home for $220,000 in 2008 and put $60,000 into a kitchen, roof and windows. Their basis is $280,000. They sell for $650,000 and pay $15,000 in selling costs, for a gain of about $355,000. That is under the $500,000 joint exclusion, so they owe no federal capital gains tax. If one spouse sold the same house as a single filer, about $105,000 would be taxable.

Why more sellers are hitting the limit

The $250,000/$500,000 limits were set in 1997 and have never been adjusted for inflation. NAR estimated in 2025 that about 34% of homeowners, roughly 29 million, could owe capital gains tax if they sold. It projected that share could reach 56% by 2030. NAR's 2025 seller profile also found the typical seller had owned their home for 11 years, an all-time high.

Bills to raise or eliminate the limit have been introduced in Congress, including the More Homes on the Market Act and the No Tax on Home Sales Act. As of the latest reporting we reviewed, none had become law. Plan around the current rules.

Connecticut vs. Florida

• Connecticut: Connecticut's income tax starts from your federal adjusted gross income. A gain you exclude federally generally stays excluded for Connecticut, per the Connecticut Department of Revenue Services. Any taxable gain is subject to Connecticut income tax.

• Florida: Florida has no state personal income tax, so there is no state tax on your gain. Federal rules still apply. Sellers pay Florida documentary stamp tax on the deed, which is a transfer tax, not an income tax. See St. Petersburg selling costs.

Situations that change the math

• Rental or second homes don't qualify for the full exclusion, and depreciation you took is recaptured.

• Inherited homes usually get a "stepped-up" basis to value at the date of death. See selling an inherited house in Connecticut.

• Partial exclusions may be available if you sell early because of a job change, health reasons or unforeseen circumstances.

• Divorce has special rules for who meets the use test. See selling a house during a divorce.

Do I have to report the sale?

You must report the sale if you receive Form 1099-S or if any of your gain is taxable. Reporting is done on Schedule D and Form 8949, per the IRS. Many closing attorneys issue the 1099-S at closing.

Plan the sale before you list

If your gain may be near the limit, talk to your CPA before you sign a listing agreement. Timing, documented improvements and who is on title can all matter. We can give you a realistic sale-price range to plug into that conversation. Get a home value, or read what it costs to sell in Connecticut.

Sources: IRS Topic 701, Sale of Your Home; IRS Publication 523; NAR on capital gains reform (July 2025); Connecticut DRS guidance on capital gains; NAR 2025 Profile of Home Buyers and Sellers (highlights). This is general information, not tax or legal advice. Consult a CPA or tax attorney about your situation.