By Eric Berman, REALTOR® | The Eric Berman Team at Compass
TL;DR:
Long-held Long Island homes carry decades of appreciation, and capital gains tax can take a significant bite out of the sale proceeds. The federal exclusion shelters $250,000 of gain for an individual seller or $500,000 for a married couple — but those numbers haven't been adjusted since 1997, while Long Island home values have multiplied. For seniors selling a home held thirty or forty years, anything above the exclusion is taxed at federal capital gains rates (15% or 20%), plus a possible 3.8% Net Investment Income Tax, plus New York State tax on the entire gain. Planning before listing — not after closing — is what separates sellers who navigate this cleanly from sellers who get an unwelcome surprise at tax time.
What "Long-Held" Actually Means for Capital Gains
A long-held Long Island home is one that has been owned for many years — typically twenty, thirty, forty years or more. For many seniors selling family homes in Manhasset, Port Washington, Garden City, Roslyn, Levittown, Jericho, Bayside, or Fresh Meadows, the home was purchased in the 1970s, 1980s, or 1990s, for somewhere between $50,000 and $300,000. Today, that same home is often worth $800,000 to $3,000,000 or more.
The difference between the original purchase price (adjusted for certain improvements over the decades) and the current sale price is the capital gain. For a home purchased in 1980 for $120,000 and sold today for $1,200,000, the gain is somewhere over $1 million — depending on what's been added to the cost basis over the years. That's a lot of appreciation, and a lot of it is potentially taxable.
This matters most for seniors, but it can also affect mid-life homeowners who bought in the late 1990s or early 2000s and have held through the appreciation cycles since. The longer the hold, the bigger the gain, and the more relevant the tax planning conversation becomes.
The Federal Primary Residence Exclusion
The most important number to know is the federal primary residence capital gains exclusion, often called the Section 121 exclusion. It shelters up to $250,000 of gain from federal capital gains tax for a single seller, or up to $500,000 for a married couple filing jointly.
To qualify, the seller has to meet two tests. The ownership test: they must have owned the home for at least two of the five years immediately before the sale. The use test: they must have lived in the home as their primary residence for at least two of those same five years. The two-year periods don't need to be continuous, and they don't need to be the same two-year period — but both tests need to be satisfied.
For most Long Island seniors selling a home they've lived in for decades, both tests are easily met. The exclusion is the first $250,000 or $500,000 of gain that simply doesn't get taxed by the federal government. Anything above that amount is taxable.
Two things to know about this exclusion that surprise sellers regularly. First, the exclusion amounts haven't been adjusted since 1997. The $250,000 and $500,000 figures were set when the median U.S. home price was around $124,000. Today, the typical Nassau County home is several times that. The exclusion that once sheltered virtually all gain on a typical home now shelters only a portion for many Long Island sellers. There has been active discussion in Congress about updating these numbers — the "More Homes on the Market Act" and similar proposals would double or eliminate the exclusion — but no legislation has passed as of this writing.
Second, the exclusion can be used multiple times in a lifetime, as long as the seller satisfies the ownership and use tests for each home. There's no "lifetime cap." A senior who used the exclusion on a home twenty years ago can use it again on the current sale, assuming they meet the tests. The only restriction is that the exclusion can't be claimed twice within a two-year window.
How the Tax on the Excess Actually Works
Once gain exceeds the exclusion, the excess is taxed as a long-term capital gain (assuming the home was held more than a year, which it almost certainly was). Long-term capital gains tax brackets in 2026 are 0%, 15%, or 20%, depending on the seller's total taxable income for the year of the sale.
For 2026, the brackets work like this: For a married couple filing jointly, the 0% rate applies to taxable income up to $98,900, the 15% rate applies to income between $98,900 and $613,700, and the 20% rate applies to income above $613,700. For single filers, the brackets are roughly half: 0% up to $49,450, 15% up to $545,500, 20% above $545,500.
A few things matter about how this works in practice for Long Island senior sellers:
The capital gain is added to the seller's other income for the year. A retired couple with $80,000 in retirement income who sell a home with a $700,000 taxable gain (after the $500,000 exclusion) suddenly have $580,000 of total taxable income, which puts the gain solidly in the 15% bracket and pushes some of it into the 20% bracket. The same couple with $200,000 of other income would see a different calculation.
The 3.8% Net Investment Income Tax (NIIT) applies on top of capital gains for sellers whose modified adjusted gross income exceeds $250,000 (married filing jointly) or $200,000 (single). For high-income sellers, this brings the effective federal rate to 18.8% or 23.8% on the portion of gain subject to NIIT.
The actual federal tax bill on a long-held Long Island home with substantial appreciation can be meaningful. For a married couple with $400,000 of post-exclusion gain, taxed at 15% federal, that's $60,000 in federal capital gains tax alone — separate from any state tax, separate from any of the other costs of selling.
New York State Capital Gains Tax — The Layer Most People Forget
Many Long Island sellers focus on federal capital gains and forget about state tax. New York State does not have a separate capital gains rate — capital gains are taxed as ordinary income at the state level. The 2026 New York State income tax brackets top out at 10.9% for the highest earners, with most middle and upper-middle income brackets falling between 5.5% and 6.85%.
This means the entire post-exclusion gain — not just the portion taxed at higher federal rates — is subject to New York State income tax. A married couple with $400,000 of post-exclusion gain might owe roughly $25,000 to $35,000 in New York State income tax on the gain, depending on their other income and applicable bracket.
For seniors who have lived in New York for decades and plan to stay, this state tax is part of the sale picture. For seniors who plan to move out of state — to Florida, North Carolina, Tennessee, or one of the other low-tax destinations — the timing of the move matters. New York taxes the gain in the year of the sale regardless of where the seller lives at year-end, so simply moving before closing does not avoid the state tax. But the timing of the broader change of domicile can affect how subsequent income is taxed in the years that follow.
How to Calculate the Cost Basis — And Why It Matters
The capital gain isn't simply the sale price minus the original purchase price. It's the net sale price (sale price minus selling costs) minus the adjusted cost basis (original purchase price plus qualifying improvements over the years).
For a long-held Long Island home, the adjusted cost basis can include the original purchase price plus:
Closing costs from the original purchase — including attorney fees, title insurance, recording fees, and transfer taxes paid at the time of purchase.
Capital improvements over the years. This is where many sellers leave money on the table. Major renovations, additions, kitchen and bathroom remodels, new roofs, new HVAC systems, finished basements, decks, pools, and other improvements that add to the home's value or extend its life all qualify. Regular maintenance (painting, lawn care, minor repairs) does not. For a home held forty years, the cumulative improvements can easily total $200,000, $300,000, or more — every dollar of which reduces the taxable gain.
Selling costs. The brokerage commission, NY State Transfer Tax, real estate attorney fees, and other costs of selling are subtracted from the sale price before calculating gain. For a fuller view of what those numbers look like, the closing costs breakdown for Long Island sellers walks through every line item.
The problem most long-held sellers face is documentation. Receipts from a kitchen remodel in 1993 are usually gone. Records of the deck addition in 2005 might or might not still exist. The IRS allows reasonable reconstruction of basis from credit card statements, contractor names, and other supporting evidence, but a seller without records is at a disadvantage. The CPA who handles the return needs as much documentation as the seller can pull together — and the earlier this work starts, the more can be reconstructed.
The Special Case of Inherited Homes
For Long Island homes inherited (rather than sold by the original owner), the tax math is different and meaningfully favorable. Inherited property receives a stepped-up basis at death, meaning the heir's cost basis is the home's value at the date of death — not the deceased person's original purchase price.
This often eliminates most or all capital gains exposure. A child who inherits a Manhasset home worth $1.5 million that was purchased by their parents for $80,000 in 1972 starts with a $1.5 million cost basis. If they sell the home a year later for $1.6 million, the taxable gain is $100,000, not $1.5 million.
The Section 121 primary residence exclusion only applies to inherited homes if the heir lives in the home as their primary residence for the required two years. Most heirs don't, so they typically sell with the stepped-up basis but without the exclusion. That's usually fine — the stepped-up basis alone shelters most of the gain.
For Long Island families navigating an inherited home sale, the timing of the sale matters. Selling shortly after death tends to produce a clean tax outcome because the sale price and the stepped-up basis are close. Selling years later, after the home has appreciated further, produces gain on the post-inheritance appreciation only.
Planning Strategies Worth Discussing With a CPA
For long-held Long Island sellers with significant gain, a few planning approaches come up in CPA conversations regularly:
Timing the sale year. Splitting a sale across two tax years isn't usually possible (a closing happens when it happens), but timing the closing into a year with lower other income can reduce the effective tax rate. A senior who plans to sell after they stop working will likely face lower rates than one who sells in their peak earning year.
Maximizing basis documentation. Working with a CPA before listing to reconstruct as much of the basis as possible — improvements, original closing costs, anything that legitimately reduces the taxable gain.
Coordinating with state-of-residence changes. For seniors planning to move out of state, the timing of the change of domicile relative to the closing affects subsequent income taxation, even though it doesn't change the tax on the home sale itself.
1031 exchanges (only for investment properties, not primary residences). If part of the home was used as a rental — or if the seller has investment property elsewhere that could be considered alongside the home sale — a CPA may identify deferral strategies that wouldn't apply to a pure primary residence sale.
Charitable strategies. For sellers with substantial gain and charitable intent, donating the home (or a portion of it) before sale, or using a qualified opportunity fund or charitable remainder trust, can in some cases convert taxable gain into charitable deduction. These are sophisticated strategies that require careful CPA work.
None of these are universally applicable. The right approach depends on the seller's specific situation, including the size of the gain, their other income, their state-of-residence plans, and their broader financial picture. For sellers thinking through the broader senior-selling decision, the guide to whether a senior should age in place or sell walks through the bigger framework these tax conversations fit into.
What to Do Before Listing
For Long Island sellers with a long-held home and likely significant capital gain, the right pre-listing sequence looks like this:
Engage a CPA at least sixty days before listing, ideally earlier. The CPA's role is to estimate the tax exposure, identify basis documentation needs, and surface any planning opportunities that depend on timing or structure. This work doesn't change the sale price, but it can change the net-after-tax outcome meaningfully.
Gather basis documentation systematically. The seller's filing cabinet, attic, garage, and digital records all matter. The original closing statement, records of major improvements, contractor invoices, and credit card statements showing renovation expenses are all useful. Some sellers discover that their basis is much higher than they realized once they start the reconstruction work.
Have the conversation about state-of-residence plans early. If a move out of state is part of the plan, the CPA needs to understand the timeline.
Run a projected net-after-tax calculation. A listing agent and a CPA together can produce an estimated net proceeds number that includes the brokerage commission, transfer taxes, attorney fees, mortgage payoff, and the estimated capital gains tax bill at federal and state levels. For sellers wanting an early sense of the gross sale-price range before the tax work begins, the home valuation tool is a useful starting point.
The Long Island Bottom Line
Capital gains tax on a long-held Long Island home is one of the few financial issues in selling that can produce a real surprise if it isn't planned for. The federal $250,000/$500,000 exclusion is generous but hasn't kept pace with Long Island appreciation. Anything above the exclusion is taxed federally at 15% or 20% (plus 3.8% NIIT for higher earners), plus New York State at ordinary income rates on the entire post-exclusion gain.
For sellers with decades of appreciation, the right CPA conversation before listing produces a clearer view of net-after-tax proceeds and often identifies basis documentation or planning approaches that reduce the bill meaningfully. The work isn't dramatic — it's a few weeks of organized record-gathering and calculation. The payoff is the difference between knowing what's coming and being surprised by it.
Q: How much capital gains tax will a Long Island senior actually pay when selling a long-held home?
A: It depends on the gain size, the seller's other income, and their state-of-residence situation. The federal exclusion shelters $250,000 (single) or $500,000 (married filing jointly) of gain. Above that, federal long-term capital gains rates apply at 15% or 20%, plus a possible 3.8% NIIT for higher earners. New York State taxes the entire post-exclusion gain at ordinary income rates, typically 5.5% to 6.85% for most middle and upper-middle bracket sellers, up to 10.9% at the top. For a married couple with $400,000 of post-exclusion gain at typical bracket levels, total federal-plus-state capital gains tax often falls in the $80,000 to $110,000 range.
Q: Has the $250,000/$500,000 capital gains exclusion been raised recently?
A: No. The federal primary residence exclusion has been $250,000 for single sellers and $500,000 for married couples filing jointly since 1997, when the Section 121 exclusion was last updated. Several bills have been introduced in Congress to raise or eliminate the exclusion — including the More Homes on the Market Act and the Middle Class Home Tax Elimination Act — but none has passed. For 2026 sales, the 1997 numbers still apply.
Q: What happens to capital gains tax when a Long Island heir sells an inherited home?
A: Inherited homes receive a stepped-up cost basis equal to the home's value at the date of the original owner's death. This often eliminates most or all of the historical appreciation from the taxable gain. A child inheriting a home worth $1.5 million that was originally purchased for $80,000 starts with a $1.5 million basis. If they sell shortly after for $1.55 million, the taxable gain is $50,000, not $1.47 million. The Section 121 primary residence exclusion only applies if the heir lives in the home for the required two years, which most heirs don't — but the stepped-up basis alone usually produces a favorable outcome.
Q: What counts as a capital improvement for cost basis purposes?
A: Major improvements that add to the home's value or extend its useful life qualify — kitchen and bathroom remodels, additions, new roofs, new HVAC systems, finished basements, decks, pools, major landscaping projects, replacement windows, and similar substantial work. Regular maintenance (painting, lawn care, minor repairs, replacement of broken appliances) does not. For long-held homes, cumulative qualifying improvements often total $150,000 to $400,000 or more, every dollar of which reduces the taxable gain. Documentation matters; reconstruction is possible but requires effort.
Q: Can a Long Island senior avoid capital gains tax by moving out of state before selling?
A: No. New York State taxes the capital gain in the year of the sale, regardless of where the seller lives on December 31. Simply moving before closing does not avoid the New York State tax on the gain. What changing domicile does affect is the taxation of subsequent income — for retirees moving to a low-tax state, the years after the sale will be taxed more favorably. But the home sale itself is a New York source of income and gets taxed accordingly.
For Long Island seniors and long-held homeowners thinking through a sale, the capital gains tax conversation is one of the most important pieces of pre-listing planning. Done early, with the right CPA, it produces a clear view of what the sale will actually net after taxes — and often identifies opportunities to reduce that tax bill meaningfully. When the time is right to talk through what a sale looks like for a specific home, alongside a CPA who can run the tax math, the door is open. No pressure, no agenda — just a conversation about the full picture.
By Eric Berman, REALTOR® | The Eric Berman Team at Compass
Eric Berman | Long Island & Queens REALTOR® | Compass 1468 Northern Blvd, Manhasset, NY 11030 (917) 225-8596 | eric@ericbermanteam.com | theericbermanteam.com
