Selling Your Home in 2026? A Tax Planning Checklist

Selling a home is one of the largest financial transactions most people will ever make. It is also one of the most misunderstood from a tax perspective. Many homeowners assume the Section 121 exclusion will eliminate their entire tax bill, only to discover at filing time that they owe more than expected. Others leave money on the table by failing to account for closing costs, improvements, and selling expenses that would have reduced their taxable gain.

If you are planning to sell your home in 2026, the time to start tax planning is now, not after the closing. This checklist walks you through the five steps every seller should take, the most common mistakes to avoid, and how to make sure your CPA has everything they need.

Step 1: Calculate Your Adjusted Cost Basis

Your adjusted cost basis is the foundation of every capital gains calculation. It represents your total investment in the property for tax purposes. The formula is:

Adjusted Basis = Purchase Price + Qualifying Closing Costs + Capital Improvements − Depreciation − Casualty Loss Deductions

Start by gathering three numbers:

1. Purchase price— The amount you paid for the home as stated on your original purchase contract or deed.
2. Qualifying closing costs— Title insurance, attorney fees, recording fees, transfer taxes, survey fees, and similar costs directly tied to the purchase. See our closing costs guide for a complete list of what qualifies.
3. Capital improvements— Any project that added value, extended the useful life, or adapted the property to a new use. This includes kitchen renovations, roof replacements, bathroom remodels, new HVAC systems, additions, and much more. Routine repairs and maintenance do not count. For a detailed breakdown of the difference, read our capital improvement vs. repair guide.

If you claimed depreciation on part of the home, for example because you used a room as a home office or rented out a portion, you must subtract the depreciation allowed or allowable from your basis. Similarly, if you claimed a casualty loss deduction after a natural disaster, that amount reduces your basis.

For most primary-residence homeowners who never rented out the property, the calculation simplifies to purchase price plus closing costs plus improvements. Take the time to be thorough. Every dollar you add to your basis is a dollar that is not taxed as a capital gain.

Step 2: Estimate Your Capital Gain

Once you have your adjusted basis, estimating your gain is straightforward:

Capital Gain = Sale Price − Adjusted Basis − Selling Costs

Selling costs, also called selling expenses, are amounts you pay to close the sale. These are subtracted from the sale price, not added to basis, but the effect on your gain is the same. Common selling costs include:

• Real estate agent commissions— Typically the largest selling expense, often 5% to 6% of the sale price (though rates have become more negotiable in recent years).
• Seller-paid transfer taxes— State or local taxes on the transfer of the property.
• Title insurance for the buyer— In some markets, the seller customarily pays for the buyer's title policy.
• Attorney fees— Legal fees related to the sale transaction.
• Staging and marketing costs— Professional staging, photography, and advertising costs paid to sell the home.
• Escrow and closing fees— Settlement agent charges on the seller's side.

Here is a quick example. You purchased your home for $400,000 with $8,200 in qualifying closing costs and made $45,000 in capital improvements over the years. Your adjusted basis is $453,200. You sell for $750,000 with $42,000 in selling costs (commissions, transfer taxes, etc.). Your estimated capital gain is:

$750,000 − $453,200 − $42,000 = $254,800

Step 3: Apply the Section 121 Exclusion

The Section 121 exclusion lets you exclude up to $250,000 in capital gains ($500,000 for married couples filing jointly) when you sell your primary residence. To qualify, you must have owned and lived in the home as your primary residence for at least two of the five years before the sale.

Using the example above, a single filer with a $254,800 gain would owe tax on only $4,800 after applying the $250,000 exclusion. A married couple filing jointly would owe nothing, as the $500,000 exclusion covers the entire gain.

There are important nuances to the exclusion that can trip up sellers:

• The two-year ownership and use tests do not need to be consecutive. You can meet them with any 24 months of ownership and any 24 months of use during the five-year lookback period.
• You can generally only use the exclusion once every two years. If you used it on a previous home sale within the past two years, you may not be eligible.
• Partial exclusions are available in certain circumstances, such as a job relocation, health reasons, or unforeseen events, even if you do not meet the full two-year requirements.
• If you rented out the home or used it as a vacation property for part of the ownership period, the post-2008 "non-qualified use" rules may reduce your exclusion proportionally.

Read our complete Section 121 guide for a deeper dive into eligibility, partial exclusions, and special situations.

Step 4: Know Your Tax Rate

Any gain above the exclusion amount is taxed as a long-term capital gain, assuming you owned the home for more than one year. The federal long-term capital gains tax rates for 2026 are:

These thresholds are based on total taxable income, not just the home sale gain. If the sale pushes your income into a higher bracket, part of the gain may be taxed at the higher rate.

In addition, high-income taxpayers may owe the Net Investment Income Tax (NIIT), a 3.8% surtax on investment income that applies when your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly). The NIIT applies to the lesser of your net investment income or the amount by which your MAGI exceeds the threshold. A large home sale gain can easily trigger this surtax, adding 3.8 percentage points to your effective rate.

Do not forget state taxes. Most states tax capital gains as ordinary income, and rates vary widely. California, for example, taxes capital gains at rates up to 13.3%, while states like Texas, Florida, and Nevada have no state income tax at all. Factor your state into the calculation for a complete picture.

Step 5: Gather Your Documentation

When you file your tax return for the year of the sale, your CPA or tax preparer will need the following:

• Original Closing Disclosure or HUD-1— Shows your purchase price and closing costs.
• Records of capital improvements— Receipts, invoices, contractor agreements, and canceled checks for every improvement you are claiming. Include a description, date, and cost for each project.
• Sale Closing Disclosure— Shows the sale price, commissions, transfer taxes, and other selling costs.
• Form 1099-S— The closing agent may issue this form reporting the sale proceeds to you and the IRS.
• Proof of residency— Utility bills, voter registration, driver's license, or other documents confirming you used the home as your primary residence during the required period.
• Prior depreciation records— If you ever claimed depreciation (home office, rental use), provide the amounts and years.

The more organized your records, the faster and cheaper your tax preparation will be. Missing documentation can lead to estimated figures, which are less defensible if the IRS ever questions your return.

Common Mistakes That Cost Sellers Money

After walking through the five steps, here are the pitfalls we see most often:

• Forgetting closing costs from the original purchase — Many homeowners only look at their purchase price and completely overlook the qualifying closing costs that should have been added to their basis. Over a long ownership period, this can mean thousands in unnecessary tax. See our closing costs guide for details.
• Misclassifying repairs as improvements— Painting a room, fixing a leaky faucet, or replacing a broken window pane are repairs. They do not add to your basis. On the other hand, replacing all the windows in the house, repainting the entire exterior, or fixing foundation damage are improvements. The improvement vs. repair distinction matters enormously.
• Not tracking older improvements— A kitchen remodel from 12 years ago counts just as much as one from last year. If you did not keep receipts, you may still be able to reconstruct records through bank statements, contractor records, or permit filings. Read our guide on tracking home improvements for taxes for tips on recovering lost records.
• Assuming the exclusion covers everything— With home values appreciating rapidly in many markets, it is increasingly common for gains to exceed the $250,000 or $500,000 exclusion. Even if you expect to be under the limit, run the numbers. A surprise taxable gain discovered at filing time leaves you with no time to plan.
• Ignoring the NIIT— Sellers often calculate their capital gains tax rate correctly but forget about the 3.8% Net Investment Income Tax. On a $100,000 taxable gain, that is an extra $3,800.
• Selling too soon— If you are close to meeting the two-year ownership and use test, waiting a few extra months could save you tens of thousands of dollars. Run the numbers before setting your listing date.

How HomeBasis Helps You Prepare

HomeBasis is designed to make every step of this checklist easier. When you set up your home, the app captures your purchase price and qualifying closing costs to establish your starting basis. As you log capital improvements over the years, your adjusted basis updates automatically. The app classifies each project and stores your receipts and documentation in one place.

When it comes time to sell, the Export Hub generates a CPA-ready report that includes your complete basis calculation, an itemized list of every improvement with dates and costs, and the documentation trail your tax preparer needs. Instead of spending hours hunting for old receipts and building a spreadsheet from scratch, you hand your CPA a clean, organized package.

Whether your sale is six months away or six years away, the best time to start tracking is now. The earlier you begin, the more complete and accurate your records will be when it matters most.

For a foundational understanding of how cost basis works, start with our complete guide to home cost basis.