BAY CASH HOMES · TAXES & PLANNING
Published October 26, 2026.
If you bought your Bay Area home in the 1980s or 1990s, it may be worth several times what you paid. That’s great news, until you learn that part of the gain may be taxable when you sell.
The home sale exclusion
Under federal Section 121, you can exclude up to $250,000 of gain ($500,000 for married couples filing jointly) when you sell your main home. To qualify, you generally must have owned the home and lived in it as your principal residence for at least two of the five years before the sale, and you can’t have used the exclusion on another home in the previous two years.
Those limits were set in 1997 and have never been raised for inflation. Congress has considered bills to increase or eliminate them, but as of this writing the $250,000/$500,000 limits still apply.
A Bay Area example
A married couple bought for $250,000, spent $100,000 on improvements over the years, and sells for $1,600,000 after $80,000 in selling costs.
- Adjusted basis: $250,000 + $100,000 = $350,000
- Amount realized: $1,600,000 − $80,000 = $1,520,000
- Gain: $1,170,000
- After the $500,000 exclusion: $670,000 potentially taxable
That remaining gain is subject to federal long-term capital gains tax. California has no special capital gains rate, so it’s taxed as ordinary income at the state level.
Ways owners reduce the bill
- Document improvements. Additions, remodels, and new roofs raise your basis. Routine repairs don’t. Dig up old receipts and permits.
- Count selling costs. Commissions, escrow, title, and transfer taxes reduce the amount realized.
- Inherited homes are different. Heirs generally get a stepped-up basis at the date of death, which can wipe out most of the built-up gain.
- Rentals have different rules. A property you didn’t live in doesn’t qualify for the exclusion, and depreciation is recaptured. A 1031 exchange may be an option for investment property.
Plan before you sign
The timing of your sale, how title is held, and whether a spouse has passed away can all change the math. Talk to a CPA before you accept any offer, cash or retail.
How Bay Cash Homes fits in
Bay Cash Homes LLC buys Bay Area houses with our own funds, renovates them, and resells them. When we make an offer, we intend to be the buyer who closes. We don’t tie up your house and shop the contract to someone else. We buy as-is, so you don’t have to fix, clean out, or stage anything first.
Related: Prop 19 and inherited homes · What it really costs to sell in the Bay Area
General information, not tax advice. Tax law changes, and your situation is unique. Consult a qualified CPA or tax attorney before selling.
Want a real number to compare?
Request a no-obligation cash offer and weigh it against your other options.