Selling a Senior’s Primary Residence: Tax Implications Every Family Should Know
Selling a Senior’s Home? Understand the Tax Implications Before You List
For many seniors, selling a primary residence is a major financial and emotional decision. Whether it's downsizing, moving closer to family, or transitioning to a retirement community, understanding the tax implications of selling a senior’s home is essential for smart financial planning.
This guide covers the most important tax considerations, including potential capital gains taxes, IRS exclusions, and how to prepare for a smooth, tax-efficient sale.
Primary Residence Exclusion: A Major Tax Break
If your loved one has lived in their home for at least two of the last five years, they may qualify for the IRS Section 121 exclusion, also known as the home sale tax exclusion. This rule allows:
Up to $250,000 in profit tax-free for single homeowners
Up to $500,000 for married couples filing jointly.
What Counts as a Capital Gain?
Capital gains are calculated by subtracting the original purchase price (plus qualifying improvements) from the sale price.
For example:
Bought the home in 1985 for $100,000
Made $50,000 in improvements
Sold the home in 2025 for $500,000
The gain would be:
$500,000 - ($100,000 + $50,000) = $350,000
If single, $250,000 would be excluded, and $100,000 would be potentially taxable.
Good to Know: Some seniors mistakenly believe the entire gain is tax-free. That’s only true up to the exclusion limit.
No Need to Reinvest the Proceeds
Some still believe they must “roll over” proceeds into another home to avoid taxes. This rule was eliminated in 1997. Now, the exclusion applies regardless of what you do with the money.
Adjusting for Depreciation and Inherited Property
If the home was ever rented out or used for business, part of the gain may be subject to depreciation recapture.
Also, if the senior inherited the property (or is passing it down), the step-up in basis rule may apply, reducing capital gains for heirs. This is a key concept for the adult children of seniors planning ahead.
Seniors Selling to Downsize or Move to Assisted Living
Seniors moving to independent or assisted living often worry about losing their home sale exclusion. The good news? If they lived in the home for two of the last five years—even if they’re now in a care facility—they may still qualify.
Special IRS Rule for Seniors in Care: Time spent in a licensed care facility can count toward the 2-out-of-5-year residency rule in certain cases.
Steps to Take Before Selling
Gather records of purchase price, renovations, and improvements
Consult a CPA or tax advisor experienced in senior real estate
Work with a Realtor® who understands the unique needs of senior homeowners
Final Thoughts: Plan Ahead to Minimize Taxes and Maximize Peace of Mind
Selling a long-time home is never just a transaction—it’s a transition. With the right knowledge and team, you can minimize tax burdens and protect your family’s financial future.
If you're a senior considering selling or an adult child helping a parent navigate this process, get professional guidance to make informed, confident decisions.
Want Help Navigating the Sale of a Senior’s Home?
Allen Deaver of Asset Realty specializes in working with seniors and their families to ensure smooth, financially sound transitions. [Contact us today] to schedule a free consultation.
