If you’re thinking about selling a home in Walnut Creek, the East Bay, or anywhere in California, there’s one tax rule you absolutely need to understand: the capital gains exemption.

When you sell a home for more than you paid, the difference is called a capital gain—and yes, Uncle Sam usually wants a cut. But with the primary residence exclusion, many sellers get to keep a large chunk (or even all) of that gain, tax-free.

Let’s break it down—and share a few expert tips to help you keep more of your money.

What Is the Capital Gains Exemption?

In real estate, the capital gains exemption lets you exclude up to:

• $250,000 in profit if you're single, or

• $500,000 in profit if you're married filing jointly

from capital gains tax when selling your primary residence.

That means if you bought your home in Walnut Creek for $700,000 and sell it for $1.2 million, you can keep that $500,000 profit tax-free—assuming you qualify.

Do You Qualify? Here’s What You Need:

To take advantage of this tax exemption, you must meet all of the following:

1. Ownership Test
   You owned the home for at least two years out of the last five years before selling.

2. Use Test
   You lived in the home as your primary residence for at least two years out of those same five years.

3. One Sale Every Two Years
   You haven’t used the exemption on another home in the past two years.

Bonus Tip: The two years don’t have to be consecutive, and you don’t need to live there at the time of sale—as long as the total adds up to 24 months within five years.

What If You Don’t Meet the Requirements?

Even if you don’t meet all the criteria, partial exemptions may be available. For example:

• A job relocation

• Health-related move

• Unforeseen circumstances (e.g., divorce, natural disaster)

The IRS may still let you exclude a portion of the gain based on how long you lived in the home.

What Counts as a Capital Gain?

Capital gain = Sale price - (Original purchase price + Improvements + Selling costs)

Be sure to track your home improvements (like new roofs, kitchen remodels, etc.)—they increase your cost basis and reduce the amount of taxable gain.

For example: If you bought for $500K, spent $50K on renovations, and sold for $800K, your gain is only $250K—not $300K.

Investment Properties Don’t Qualify

This exemption only applies to primary residences. If you’re selling a rental property or vacation home in the East Bay or anywhere in California, you’ll need to explore other tax strategies—like 1031 exchanges.

Walnut Creek Homeowners: Why This Matters

The real estate market in Walnut Creek and the broader East Bay continues to appreciate. Many longtime homeowners are sitting on hundreds of thousands of dollars in equity. Understanding how to legally avoid taxes on that gain can dramatically improve your financial future.

Whether you’re upgrading, downsizing, or cashing out to retire—make sure you’re making the move strategically.

Want Help Planning Your Sale?

At Ask Brendan, we help East Bay sellers navigate every part of the process—from pricing your home right to maximizing tax savings. If you're thinking about selling, or just want to know what your home is worth, reach out today.