How capital gain on a house is figured
Your gain is roughly the sale price minus selling costs, minus what you paid plus the cost of improvements (your "basis").
- Start with the sale price.
- Subtract selling costs (such as your share of transfer tax and any commission).
- Subtract your basis: purchase price plus capital improvements.
- The result is your gain. Then apply any exclusion.
Keep receipts for improvements like a new roof or addition. Routine repairs usually do not count. See how transfer tax works in our transfer tax guide.
Not everything counts toward basis. Capital improvements that add value or extend the home's life generally count; painting and small repairs usually do not. If you inherited or received the house as a gift, your basis is figured differently, so ask a tax professional.
The federal home sale exclusion
You can exclude up to $250,000 of gain ($500,000 married filing jointly) if you owned and lived in the home as your main home for 24 months of the last 5 years.
| Rule | Detail |
|---|---|
| Amount | $250,000 single; $500,000 married filing jointly |
| Ownership and use | 24 months of the last 5 years |
| How often | Once every 2 years |
| Partial exclusion | May apply if you moved early for a job change, health, or unforeseen circumstances |
| Surviving spouse | Can use $500,000 if the home sells within 2 years of the spouse's death |
The 24 months do not have to be in a row.
The ownership and use tests have extra details for married couples, so check IRS Topic 701 if only one spouse is on the deed or lived in the home. If you do not meet the full rules, you may still qualify for a partial exclusion; IRS Topic 701 explains how it is figured.
How Delaware taxes the gain
Delaware has no separate capital gains rate: taxable gain is added to your income and taxed at ordinary rates, topping out at 6.6% on income over $60,000.
If your gain is fully excluded federally, it generally does not become Delaware taxable income either. If part of it is taxable, that part is added to your Delaware income.
Delaware's system is simpler than a separate capital gains schedule: you do not track a different state rate for long-term versus short-term gains. Your total income, including any taxable gain, sets the bracket. For many retirees and middle-income sellers, the full exclusion means there is no Delaware tax on the sale at all.
Nonresident sellers: REW-EST withholding
If you do not live in Delaware and sell Delaware real estate, an estimated tax must be filed with the Recorder of Deeds before the deed is recorded, and it is withheld from your net proceeds.
- Form: REW-EST (formerly 5403).
- Rate: 6.6% of the gain for individuals; 8.7% for C corporations.
- Exemptions include gain excluded under IRC §121 (the home sale exclusion) and foreclosure or deed in lieu transfers.
- The amount is a credit against your Delaware income tax when you file.
Maryland has its own nonresident withholding: 8.75% for individuals and 8.25% for entities on sales after June 30, 2025. That matters if you sell in Elkton.
Withholding is not the final tax. If more was withheld than you owe, you can get the difference back when you file your Delaware return. If less was withheld, you pay the balance. Tell your settlement agent early that you are a nonresident so the form is ready and the deed can be recorded on time.
Inherited homes and stepped-up basis
Heirs generally get a stepped-up basis equal to the home's value on the date of death. That often wipes out most of the gain. If a parent bought a house for $60,000 and it was worth $280,000 when they died, the heirs' basis is generally $280,000, not $60,000.
Delaware has no inheritance tax and no estate tax for deaths after 2017. For the estate process, see our Register of Wills guide and selling an inherited house.
If heirs keep the house for years and it rises in value, the gain above the stepped-up basis may be taxable when they sell. If an heir moves in and makes it their main home for 24 of the last 60 months, the home sale exclusion may apply to that later gain. Surviving spouses have their own rule: the $500,000 amount can still apply if the home sells within 2 years of the spouse's death.
Rental property is different
A rental you never lived in does not qualify for the home sale exclusion, and depreciation you took (or could have taken) generally must be accounted for when you sell. Depreciation lowers your basis, which raises your gain. Rules for depreciation recapture are technical, so work with a tax professional before you sell.
Landlords can read selling a rental with tenants or options for tired landlords. Seller financing may spread payments over time; ask your tax advisor how that affects you.
If you lived in a home and later rented it out, or rented it before moving in, the rules for splitting the gain between personal and rental use get more detailed. Bring your purchase records, depreciation schedules, and move-in and move-out dates to your tax preparer.
Planning tips before you sell
A little planning before closing can reduce surprises.
- Check your dates. If you are a few months short of 24 months of ownership and use, waiting may make the full exclusion available.
- Gather records of purchase price, closing statements, and improvements.
- Nonresidents: tell your settlement agent early if you qualify for a REW-EST exemption, such as the §121 exclusion.
- Estates: get a date-of-death value, such as an appraisal, to document the stepped-up basis.
- Rentals: ask your tax advisor about depreciation before choosing a sale structure.
Examples
These simplified examples ignore selling costs and improvements.
| Situation | Gain | Result |
|---|---|---|
| Single owner-occupant, 6 years in home; bought $150,000, sold $350,000 | $200,000 | Fully excluded (under $250,000) |
| Married couple filing jointly, 10 years in home; gain $600,000 | $600,000 | $500,000 excluded; $100,000 taxable federally and as Delaware ordinary income |
| Nonresident individual sells DE rental; gain $100,000 | $100,000 | $6,600 estimated tax withheld (6.6%), credited on DE return |
| Heir sells soon after death; date-of-death value $280,000, sold $285,000 | $5,000 | Small gain due to stepped-up basis |
Estimate your take-home with our net proceeds calculator, or call (302) 798-8655.
General information, not legal or tax advice.
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Get My Written Offer Call (302) 798-8655Frequently asked questions
Do I pay capital gains tax when I sell my house in Delaware?
Usually not, if you owned and lived in it 24 of the last 60 months and your gain is under $250,000 ($500,000 married filing jointly).
What is Delaware's capital gains tax rate?
Delaware has no separate rate. Gains are taxed as ordinary income, with a top rate of 6.6% on income over $60,000.
What is REW-EST in Delaware?
It is the estimated tax form (formerly 5403) nonresident sellers file with the Recorder of Deeds before the deed is recorded. Individuals pay 6.6% of the gain, withheld from proceeds.
Are nonresidents exempt from withholding if they lived in the home?
Gain excluded under IRC §121, the home sale exclusion, is exempt. Foreclosures and deeds in lieu are also exempt.
Do heirs pay capital gains on an inherited house?
Only on gain above the stepped-up basis, which is generally the home's value on the date of death.
Can I use the exclusion on a rental property?
Generally no, unless you also lived in it as your main home for 24 of the last 60 months. Talk to a tax professional about depreciation.
Sources
General information, not legal, tax, or financial advice. Laws, fees, and schedules change. Confirm with the office named or your attorney.