Do you pay capital gains tax when you sell a house in Virginia?

Usually not, if it was your main home. Federal law lets you exclude up to $250,000 of gain ($500,000 for most married couples filing jointly) when you’ve owned and lived in the home for at least two of the last five years. Virginia starts its income tax from your federal adjusted gross income, so gain you exclude federally generally doesn’t get taxed by Virginia either. If your gain is bigger than the exclusion, or the property was a rental or second home, the taxable part is hit by federal capital gains tax and by Virginia’s regular income tax rates, which top out at 5.75%.

This is general information, not tax advice. Run your own numbers with a CPA or tax preparer before you list.

How does the $250,000 / $500,000 home sale exclusion work?

The rules come from the IRS. Per IRS Topic 701, Sale of your home (last updated Oct. 12, 2026), you can exclude up to $250,000 of gain on the sale of your main home, or up to $500,000 if you file jointly with your spouse, as long as you meet two tests during the five years before the sale:

Test	What it requires
Ownership test	You (or your spouse, on a joint return) owned the home for at least 24 months
Use test	You lived in it as your main home for at least 24 months; on a joint return, both spouses must meet this
Look-back rule	Generally, you can’t have used the exclusion on another home sale in the prior two years

The 24 months don’t have to be continuous, and the ownership and use periods can be different stretches, as long as both fall inside the five years before closing.

If you don’t quite meet the two-year rule, you may still get a partial exclusion. IRS Publication 523 lists qualifying reasons, including a work-related move, a health-related move, a death, a divorce and other unforeseen events.

How do you figure your gain?

Your gain isn’t the sale price minus what you paid. Publication 523 lays out the formula: selling price, minus selling expenses, equals the amount realized; subtract your adjusted basis, and the result is your gain or loss. Your adjusted basis generally starts with what you paid and goes up with qualifying improvements.

Here’s a hypothetical example (made-up numbers, for illustration only):

Line	Amount
Sale price	$700,000
Selling expenses (commission, closing costs)	−$40,000
Amount realized	$660,000
Purchase price	$300,000
Qualifying improvements (new kitchen, addition)	+$50,000
Adjusted basis	$350,000
Gain	$310,000

For a married couple filing jointly who meet both tests, that $310,000 is under the $500,000 cap, so none of it is taxable. For a single owner, $250,000 is excluded and $60,000 is taxable.

When I help sellers think through net proceeds, the first thing I ask for is the closing statement from their purchase and a list of major improvements with receipts. People forget about the roof, the addition or the finished basement, and those can lower the taxable gain. Start that folder now, not in April.

What if your gain is more than the exclusion?

The taxable part is treated as a capital gain. According to IRS Topic 409, gain on property held more than one year is long-term and taxed at 0%, 15% or 20% depending on your taxable income; gain on property held a year or less is short-term and taxed as ordinary income. Higher-income sellers may also owe the 3.8% net investment income tax. The IRS adjusts the income thresholds each year, so check the current figures for your tax year.

Continuing the hypothetical single seller with $60,000 of taxable long-term gain:

Tax	Rough estimate (illustrative)
Federal, if the gain falls in the 15% bracket	About $9,000
Virginia, at the 5.75% top rate	About $3,450
Total	About $12,450

Illustration only. Your actual rate depends on your full return, including other income, deductions and whether the net investment income tax applies.

Does Virginia have its own capital gains tax?

Not a separate one. Virginia taxable income starts with your federal adjusted gross income (Va. Code § 58.1-322), and Virginia taxes it at its regular rates, from 2% up to 5.75% on income over $17,000 (Va. Code § 58.1-320). There’s no lower Virginia rate for long-term gains on a home. Virginia Tax does list a long-term capital gains subtraction on its subtractions page, but it applies only to certain investments in qualified technology businesses made between 2010 and 2020, not to home sales.

Do you still pay capital gains tax after age 65?

Yes, the same rules apply at any age. The federal exclusion in Topic 701 has no age requirement and no age-based extra break.

Virginia does have an age deduction worth up to $12,000 per person for people born on or before Jan. 1, 1960, but for most people it’s income-tested. Per Virginia Tax, for those born between Jan. 2, 1939, and Jan. 1, 1960, the deduction drops $1 for every $1 that adjusted federal AGI goes over $50,000 (single) or $75,000 (married). So a large taxable gain in the year you sell can shrink or wipe out your Virginia age deduction that year. If you’re retired and the gain is more than your exclusion, ask your tax preparer to run it before you pick a closing date.

When is a home sale fully taxable?

Situation	Exclusion available?
Main home, owned and lived in 2+ of the last 5 years	Yes, up to $250,000 / $500,000
Main home, less than 2 years, moved for work, health or another qualifying reason	Possibly a partial exclusion (Pub. 523)
Rental property you never lived in	No
Second home or vacation home	No, unless it meets the main-home tests
Former rental you later lived in	Partial; Pub. 523 covers “nonqualified use” and depreciation recapture
Inherited house	Different basis rules; see selling an inherited house in Virginia

If you ever claimed depreciation for a home office or rental use, that depreciation generally can’t be excluded. IRS Topic 409 notes that unrecaptured section 1250 gain is taxed at up to 25%.

How should you plan the sale?

• Check your dates. If you’re a few months short of two years, moving your closing date may matter more than a slightly higher offer.
• Count both spouses. On a joint return, both of you need to meet the use test for the full $500,000.
• Document improvements. Receipts and permits raise your basis.
• Expect the paperwork. Topic 701 says you must report the sale if you receive a Form 1099-S, even if all the gain is excluded.
• Price from real net numbers. Commission, closing costs and taxes all come out of the same check. Our Richmond cost-to-sell guide breaks down the costs other than taxes.

The bottom line

Most Virginia homeowners selling a main home they’ve lived in for at least two years owe no capital gains tax, because the federal exclusion covers their gain and Virginia follows the federal number. The ones who do owe are usually selling rentals, second homes, or homes with very large gains, and they pay federal capital gains rates plus Virginia’s regular income tax.

If you’re thinking about selling, Daniel and the Keeton & Co team can help you estimate your sale price and closing costs so you and your tax preparer are working from real numbers. Start with a free home value estimate, see how we sell homes, or contact us at (804) 556-1228.

Sources: IRS Topic 701 (updated Oct. 12, 2026), IRS Topic 409, IRS Publication 523, Va. Code §§ 58.1-320 and 58.1-322, and Virginia Tax’s subtractions page, all accessed Nov. 9, 2026. This article is general information, not tax or legal advice. By Daniel Keeton, Broker & Founder, Keeton & Co Real Estate. Updated Nov. 9, 2026.