Capital gains when you sell a Long Island home

Start with the bad news

The $500,000 married exclusion has not changed since 1997. Not one dollar. It is not tied to inflation, so every year Long Island prices climb, that number covers less of your gain. Single filers get half of it. A widow or widower who waits too long gets half of it too, and that trap costs people more than any other on this page.

New York gives you no break either. The federal government taxes long term gains at a lower rate; New York taxes your gain as ordinary income, the same as a paycheck. The state bill is real even when the federal bill is small.

A worked St. James example

A couple buys in St. James in 1996 for $300,000, with about $4,500 in closing costs. Over the years: the roof at $18,000, the kitchen at $45,000, two bathrooms at $30,000, central air at $12,000, windows at $16,000, the paver driveway and patio at $24,000, the finished basement at $35,000. That is $180,000 of improvements, and an adjusted basis of $484,500. Not $300,000.

Three sale prices: the quick sale is where it lands when you need it gone, the market number is normal timing in a normal market, and the top number needs condition, season, and two motivated buyers to line up. The top column deliberately stops at $999,000, one dollar under the mansion tax cliff explained below.

Cost of selling in the table: broker compensation at 5 percent, the New York State transfer tax at $2 per $500 of price, an attorney at $2,500, recording and title pickup at $1,200. Every assumption is listed in the sources section.

Married and living there, this couple owes nothing at any of the three prices. That is the answer most people never get told.

The same house, no receipts

Now run it the way most people file. No record of the $4,500 in purchase costs, no receipts for the $180,000 of improvements, nobody subtracted the $55,000 it cost to sell. Sale price $950,000 minus purchase price $300,000 reads as a $650,000 gain, and after the $500,000 exclusion, $150,000 is taxable.

At $150,000 of other household income that runs about $22,500 federal at the 15 percent long term rate, about $8,800 to New York, and about $1,900 of the 3.8 percent net investment income surtax that starts once a married couple's income passes $250,000. Roughly $33,200 total. Same house, same day, same buyer. The difference was $239,500 of paperwork sitting in a shoebox in that finished basement.

The age question, answered for good

There is no age rule anymore. None. Before 1997 there were two old rules, and people still repeat them at kitchen tables: one let you roll the gain into your next house, the other gave you a one time $125,000 exclusion after 55. Congress replaced both in 1997. You do not have to be 55 or 65, you do not have to buy another house, and it is not once in a lifetime.

The only test now is ownership and use: you owned the home and lived in it as your main home for at least two of the last five years, and you have not used the exclusion on another sale in the past two years. You can use it again every two years for the rest of your life.

One piece of the old world still bites. If you sold a house before May 1997 and rolled that gain into the house you are in now, the deferred gain permanently lowered your basis in this one. A 1990s mover sometimes has a lower basis than the old contract suggests. If you moved up in 1994 or 1996, dig out the old file.

The gotchas that cost real money

The widow and widower cliff. If your spouse passed and you sell within two years without remarrying, you keep the full $500,000. Past that mark you file single and get $250,000, and on the $950,000 example above a single filer with $100,000 of other income owes roughly $36,300 all in. Two years and a day can move the bill from zero to that. There is a second half that often rescues it: at a spouse's passing, their half of the house resets to its value on that date, which in the example lifts the basis to about $692,250 and shrinks the gain back under the single exclusion. Often, not always. If the house keeps climbing after that date, the window still matters. Never assume; run it.

Do not put your children on the deed. The most expensive well meaning mistake in the county. A child added to the deed while you are alive inherits your low basis on that share instead of the reset they would get by inheriting, which can be a six figure difference for them, and it exposes the house to their divorce, their creditors, and their bankruptcy. Talk to an estate attorney about a trust instead.

Rental history and depreciation. Depreciation taken, or even just allowable, after May 1997 is not covered by the exclusion; it comes back at up to 25 percent. And time after 2008 when the house was not yet your main home again, typically a stretch when you rented it out before moving back in, prorates the exclusion. Renting the house after you move out, inside the five year sale window, does not prorate the exclusion, though the depreciation rule still applies. This corner has enough edges that a CPA earns their fee on it.

The mansion tax cliff. A residential sale at $1,000,000 or more triggers an extra 1 percent tax paid by the buyer. At $999,000 the buyer owes nothing; at $1,000,000 they owe $10,000. One more dollar of asking price costs your buyer ten thousand, which is why there is a dead zone just above a million and why the example tops at $999,000. If the house truly supports $1,050,000, go there; sitting at $1,005,000 is the worst of both.

The 1099-S at the table. The title company reports the sale to the IRS unless you sign the certification saying it qualifies for the exclusion. Sign it at closing; ask for it if nobody offers it.

Nobody withholds for you. A New York resident has no income tax held back at closing; the bill arrives in April, often after the proceeds became a down payment. If you will owe, set it aside the day you close. Moving out of state before closing? New York collects a nonresident estimated payment at the table on Form IT 2663.

Medicare premiums, two years later. Part B and Part D premiums are set from your income two years back, so a big taxable gain now can raise premiums later, and a one time home sale is generally not an appealable life event. If you are near a threshold, closing timing matters more than people think. Confirm with whoever does your return.

Selling costs are not deductions. They reduce your gain, which is better. Nobody writes off a commission on Schedule A.

Where every number came from

Worked example assumptions, all swappable: 1996 purchase at $300,000 in St. James, purchase closing costs $4,500, capital improvements $180,000, adjusted basis $484,500. Selling costs: broker compensation 5 percent, New York State transfer tax at $2 per $500, attorney $2,500, recording and title pickup $1,200. Other household income $150,000 married, $100,000 single; the standard deduction is ignored, which makes the state estimates slightly conservative.

Checked against current sources as of August 2026: the Section 121 exclusion ($250,000 single, $500,000 married, two of five years, once every two years, no age requirement, the one year care facility exception, the two year surviving spouse window, depreciation after May 6 1997 not excludable, nonqualified use after 2008 prorated); the 2026 federal long term capital gains brackets; the 3.8 percent net investment income surtax at $200,000 single and $250,000 married, never indexed; the 2026 New York brackets, which tax gains as ordinary income; the New York transfer tax at $2 per $500 with the buyer paid 1 percent mansion tax at $1,000,000 and up; the Peconic Bay transfer tax, a buyer cost only in the five East End towns; and the 2026 Medicare Part B standard premium with its income tiers. No federal law has passed removing capital gains tax on home sales; proposals exist, none are law as of this writing.