Two houses. Same street. Same floor plan. Same view.

One sold in 2019 for $800,000. The other — same tract home, same layout, same neighborhood — sold in 2025 for $1,475,000.

That's over 84% appreciation in six years. And depending on your situation, that kind of gain can put you squarely in capital gains tax territory — whether you saw it coming or not.

This is one of the most misunderstood aspects of selling a home in today's market. And it's one of the most important conversations to have — with your financial team — before you list.

Where things stand

Under current IRS rules, if you've owned your home and lived in it as your primary residence for at least two of the last five years, you can exclude a portion of your gain from federal taxes:

  • $250,000 in gain if you're a single filer
  • $500,000 in gain if you're married filing jointly

These limits were set in 1997. Home prices in North County San Diego are not 1997 prices. In a market where homes regularly sell for well over a million dollars, these thresholds don't go nearly as far as they once did — and for many sellers, they don't cover the full gain.

That's the reality of selling in coastal Southern California in 2026. Not a scare tactic — just the math.

You don't have to have owned your home for decades

There's a common assumption that capital gains is a "long-time homeowner" problem — something that happens to people who bought in the 1980s or 1990s for a fraction of today's prices.

That assumption no longer holds in coastal Southern California.

The pandemic years accelerated home price growth across California in ways no one predicted. In high-demand markets like Carlsbad, Encinitas, and Oceanside, meaningful taxable equity can build in under a decade — sometimes less. If you purchased in 2018 or 2019 and are considering selling today, the math may look very different than you expect.

Back to those two houses: a home purchased for $800,000 in 2019 and sold for $1,475,000 in 2025 represents over 84% appreciation in six years. After the $500,000 federal exclusion for a married couple filing jointly, there's still $175,000 in potentially taxable gain — before accounting for selling costs, improvements, and other factors that can reduce that number.

That's not a worst-case scenario. That's Tuesday in North County San Diego.

What's happening in Congress

There is bipartisan momentum in Washington to raise the federal exclusion — specifically, to double it to $500,000 for single filers and $1,000,000 for married couples filing jointly, with future adjustments for inflation. The National Association of Realtors® has been actively advocating for this change through the More Homes on the Market Act. A separate bill, the Nest Egg Protection Act, would temporarily raise the exclusion to $1,000,000 for homeowners 65 and older who have owned their primary residence for at least 25 years.

The case for raising these limits is straightforward: 1997 exclusions don't reflect 2026 home values. In high-cost markets like ours, they haven't kept pace with reality for a long time.

But here's the honest answer: as of now, neither bill has been enacted. Both remain in committee. The current exclusion — $250,000 single / $500,000 married filing jointly — is still the law governing your 2026 sale.

Treat any potential increase as welcome news if it happens — not a planning assumption until it does.

What actually reduces your taxable gain

Your taxable gain isn't simply "selling price minus what you paid." Several factors can reduce it — and they're worth knowing:

  • Capital improvements you've made over the years — a new roof, kitchen remodel, addition — increase your cost basis and reduce the gain.
  • Selling costs including agent commissions, closing costs, and certain fees can also be deducted from your gain.
  • Documentation matters. Keep receipts and records of every improvement. They're worth real money at tax time.

This is exactly why your CPA, financial advisor or planner, and estate attorney need to be the first calls you make — not after you've accepted an offer, but before you've even decided to list. They can help you understand exactly where you stand and whether any steps before the sale make sense for your situation.

The bottom line

Capital gains tax is not just a concern for people who've owned their homes for decades. In a market that saw extraordinary appreciation over a very short period, it's a real and immediate consideration for anyone thinking about selling — whether that's been six years or thirty.

Understanding it doesn't have to be overwhelming. The key is knowing it's a factor, talking to your financial and legal team first and often — your CPA, your financial advisor or planner, your estate attorney — before you even think about setting the wheels in motion. Make decisions based on your full picture, not just the asking price.