Most people who sell their main home in Virginia owe no capital gains tax at all. Federal law lets you exclude up to $250,000 of gain ($500,000 for married couples filing jointly) if you owned and lived in the home for 2 of the last 5 years, and Virginia starts from your federal income, so that excluded gain isn’t taxed by the state either. Any gain above the exclusion is taxed by the IRS at 0%, 15% or 20%, and by Virginia as ordinary income at up to 5.75%.
I’m Joe. My family runs Sell Richmond Home Fast. I’m not a CPA, but sellers ask me about this constantly, so here’s the plain-English version with sources.
Quick answer
- Exclusion: up to $250,000 of gain tax-free, or $500,000 married filing jointly.
- Tests: owned and lived in it 2 of the last 5 years; no exclusion used in the past 2 years.
- Federal rate on gain above that: 0%, 15% or 20% if you owned it more than a year; regular income rates if a year or less.
- Virginia: no special rate. Taxable gain is ordinary income, taxed at up to 5.75%.
Do you owe capital gains tax when you sell your house in Virginia?
The home sale exclusion (IRC §121) in plain words
Capital gain is what you made on the house: roughly, the sale price minus what you paid and what you spent improving it. Section 121 of the tax code lets you leave up to $250,000 of that gain off your taxes, or $500,000 if you’re married and file jointly.
The ownership and use tests (2 of 5 years) and the once-every-2-years limit
To get the full exclusion, you must have owned the home and used it as your main home for at least 2 years during the 5 years ending on the sale date. You also can’t have claimed the exclusion on a different home in the 2 years before this sale. Members of the military and Foreign Service on qualified extended duty can choose to suspend the 5-year window for up to 10 years.
Partial exclusion if you moved early for work, health, or an unforeseeable event (Pub 523)
If you sell before hitting 2 years, IRS Publication 523 says you may still get part of the exclusion when the move was for a job change, a health reason, or certain unforeseeable events. The amount is prorated by how long you met the tests.
How to figure your gain
The math has three steps:
- Amount realized = sale price minus selling costs.
- Gain = amount realized minus your adjusted basis (purchase price plus capital improvements).
- Taxable gain = gain minus your exclusion.
Here’s an illustration with made-up numbers, not a real client. A single filer bought a Chesterfield house for $150,000 and put $30,000 into a new roof and an addition, for a basis of $180,000. She sells for $480,000 and has $15,000 in selling costs.
| Step | Amount |
|---|---|
| Sale price | $480,000 |
| Minus selling costs | – $15,000 |
| Minus adjusted basis | – $180,000 |
| Gain | $285,000 |
| Minus §121 exclusion (single) | – $250,000 |
| Taxable gain | $35,000 |
If her other income puts her in the 15% federal bracket, the federal tax on that $35,000 is about $5,250. In Virginia, the $35,000 lands in her top 5.75% bracket, so about $2,013 more. Had she been married filing jointly with a $500,000 exclusion, she’d owe nothing on this sale.
Federal capital gains rates for 2026
Gain on a home you owned for more than a year is long-term. The 2026 brackets come from IRS Rev. Proc. 2025-32 and are based on your taxable income:
| Filing status | 0% rate up to | 15% rate up to |
|---|---|---|
| Single | $49,450 | $545,500 |
| Married filing jointly | $98,900 | $613,700 |
| Head of household | $66,200 | $579,600 |
| Married filing separately | $49,450 | $306,850 |
Income above the 15% ceiling is taxed at 20%. If you owned the home for 1 year or less, the gain is short-term and taxed at your regular income tax rates.
How Virginia taxes the gain
Virginia starts from federal AGI (§58.1-322), so the §121 exclusion flows through (Tax Commissioner ruling 09-110)
Virginia’s income tax begins with your federal adjusted gross income under Va. Code §58.1-322. Gain you excluded federally never makes it into that number, and the Tax Commissioner confirmed this in ruling 09-110. So if the IRS doesn’t tax your home sale gain, Virginia doesn’t either.
No special capital gains rate in Virginia
Virginia Tax states it plainly: “Virginia does not currently have any preferential tax treatment for capital gains.” Taxable gain is added to your other income and taxed under §58.1-320 at 2% on the first $3,000, 3% from $3,001 to $5,000, 5% from $5,001 to $17,000, and 5.75% above $17,000.
SB 139 (2026): proposed, not passed
Senate Bill 139 would have created a state subtraction for some primary-residence gain above the federal limit. In January 2026 the Senate Finance and Appropriations Committee continued it to 2027, and it is not law. As of today, nobody qualifies for it.
When the exclusion doesn’t cover everything
- Your gain is bigger than $250,000 or $500,000. The excess is taxable at the rates above.
- The home was a rental at some point. Depreciation you took (or could have taken) after May 6, 1997 can’t be excluded. That part, called unrecaptured §1250 gain, is taxed federally at up to 25%.
- You sold within 2 years without a qualifying reason. The gain is taxable, and short-term if you owned it a year or less.
- You inherited the house. Different basis rules apply, so ask your tax preparer how they affect you.
One more: if you sell your personal home at a loss, that loss isn’t deductible.
Other money at closing that isn’t capital gains tax
Virginia charges a grantor tax on the deed under §58.1-802: 50 cents per $500 of value, paid by the seller unless the contract says otherwise. That’s a recording tax, not income tax. Our post on costs you may face when selling in Richmond covers it along with the other closing costs.
The settlement agent may also send you, and the IRS, a Form 1099-S. If you get one, or if any part of your gain is taxable, you’ll report the sale on Form 8949 and Schedule D. Here are the documents you need when selling.
Does selling for cash change the tax?
No. The tax depends on your gain and how long you owned and lived in the home, not on how the buyer pays. What a cash sale changes is your net proceeds. When we buy, it’s as-is, there are no commissions or fees, and I pay the closing costs. If you’re selling one house to buy the next, read how to sell and buy at the same time. To see your number, request a cash offer or call (804) 293-0208, 7 AM to 7 PM. I reply within 3 hours.
Frequently asked questions
Do I have to pay capital gains tax when I sell my house in Virginia?
Usually not, if it was your main home. You can exclude up to $250,000 of gain, or $500,000 married filing jointly, when you owned it and lived in it for at least 2 of the 5 years before the sale. Virginia follows the federal figure, so the state doesn’t tax the excluded gain either.
What is the capital gains tax rate in Virginia?
Virginia has no separate capital gains rate. Taxable gain is added to your other income and taxed at the regular state rates, which top out at 5.75% on taxable income over $17,000.
How do I avoid capital gains tax on a house sale?
The main legal route is qualifying for the home sale exclusion by meeting the 2-out-of-5-year ownership and use tests. Keeping records of improvements helps too, because they raise your basis and shrink your gain. A tax professional can tell you whether a partial exclusion or another rule fits.
What if I lived in the house less than 2 years?
You may still get a partial exclusion if you sold because of a job change, a health reason, or certain unforeseeable events. If not, the gain is taxable, and if you owned the home 1 year or less it’s taxed at ordinary federal rates.
Is the tax different if I sell my house for cash?
No. How the buyer pays doesn’t change the tax. What matters is your gain, how long you owned and lived in the home, and whether it was ever a rental.
Did Virginia pass a law to stop taxing home sale gains?
Not as of October 2026. Senate Bill 139 would have created a Virginia subtraction for some primary-residence gain above the federal limit, but it was continued to 2027 and isn’t law.
This article is general information, not tax or legal advice. Tax rules change and depend on your facts; talk to a CPA or tax attorney before you sell.