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Sellers · Taxes · Updated October 2026

Selling your home after 55 in Arizona: is there still a capital gains exemption?

The over-55 exclusion ended in 1997, but today's home sale exclusion lets qualifying owners of any age keep up to $250,000 of gain ($500,000 for married couples) tax-free. Here's how it works, the rules for widows, widowers and moves into care, and how Arizona taxes any gain.

See 55+ homes for sale See if you qualify

Please note: Greg Slaughter is a real estate agent, not a tax advisor, CPA or attorney. This page is general information from IRS and Arizona Department of Revenue publications. It is not tax, legal or financial advice. Tax rules change and every situation is different, so please talk with your own tax professional before you sell or make decisions based on anything here.

The short answer

The over-55 rule is gone

The old one-time $125,000 exclusion for people 55 and older only applied to home sales before May 7, 1997. It was replaced by today's exclusion, which works at any age (IRS Pub. 523, 1997).

$250,000 or $500,000 tax-free

If you qualify, you can exclude up to $250,000 of gain on the sale of your main home, or up to $500,000 for a married couple filing jointly (IRS Pub. 523).

Own and live there 2 of 5 years

You generally must have owned the home and lived in it as your main home for at least 24 months in the 5 years before the sale. The months don't have to be in a row (IRS Pub. 523).

Arizona follows the IRS

Arizona's return starts from your federal adjusted gross income, so gain you exclude federally isn't in it. Any taxable gain is taxed at Arizona's flat 2.5% (Arizona Department of Revenue).

If you've owned and lived in your Sun City, Sun City West or other West Valley 55+ home for years, these rules are worth knowing before you list. Below are the rules in plain English, the special situations that come up most after 55, and a simple checklist to take to your tax professional before you list.

Do you qualify for the full exclusion?

IRS Publication 523 walks through an eligibility test. In general, you qualify for the full $250,000 or $500,000 exclusion if all of these are true:

It's your main home. You can have only one main home at a time. If you split the year between two homes, the IRS looks mainly at where you spend the most time, plus things like the address on your driver's license, voter registration and tax returns. A single-family home, a condo, a co-op and a mobile home can each qualify.
Ownership: you owned the home for at least 24 months (2 years) of the 5 years before the closing date. For a married couple filing jointly, only one spouse has to meet this.
Residence: you lived in the home as your main home for at least 24 months (730 days) of those 5 years. Short absences like vacations count as time at home. For the $500,000 joint exclusion, each spouse has to meet the residence test.
Look-back: you didn't exclude gain on another home sale in the 2 years before this one. You can use the exclusion once every 2 years.
No automatic disqualifications: for example, you didn't get the home through a 1031 (like-kind) exchange in the past 5 years.

Don't quite meet the 2-year test? You may still get a partial exclusion if the main reason for selling was a health issue, a job change or an unforeseeable event. The IRS lists moving to get or provide care for a family member's illness or injury, a doctor recommending a change of residence, and the death of a spouse or co-owner, among others (IRS Pub. 523).

Special rules that often matter after 55

Moving into a care facility

If you become physically or mentally unable to care for yourself, time you spend living in a licensed care facility, such as a nursing home, counts toward the 2-year residence test, as long as you lived in the home for at least 12 months of the 5 years before the sale (IRS Pub. 523).

Widows and widowers

A surviving spouse who hasn't remarried can count the late spouse's time owning and living in the home. You may still exclude up to $500,000 if you sell within 2 years of your spouse's death and meet the other conditions (IRS Pub. 523).

Arizona is a community property state

In community property states, which include Arizona, when one spouse dies the full fair market value of community property usually becomes the basis of the whole property, including the surviving spouse's half. At least half the value must be includible in the late spouse's estate (IRS Pub. 523). Ask your tax professional or attorney how your home was titled.

Selling the home you moved away from

Because your 24 months can fall anywhere in the 5 years before the sale, a home you lived in for years can generally still qualify if you sell within about 3 years of moving out (IRS Pub. 523). That can help if you move to Arizona first and sell your old home later.

Snowbirds with two homes

Only your main home qualifies. Gain on a second or vacation home generally doesn't, and time after 2008 when a home wasn't anyone's main home can reduce the exclusion when you later sell it (IRS Pub. 523). Ask your tax pro before you sell either one.

Postponed gain from before 1997

If you "rolled over" gain from a home sold before May 7, 1997 into a later home, that postponed gain lowers your basis in the home you own now, which makes your gain larger (IRS Pub. 523, Worksheet 2). Old tax returns with Form 2119 are worth finding.

How to figure your gain

Your gain isn't the sale price minus what you paid. The IRS formula (Pub. 523) gives you credit for selling costs and for improvements you've made:

Step	What it includes
Sale price	Everything you receive for the home. Money a buyer pays you for furniture or other personal property isn't part of the home's sale price and is reported separately.
− Selling expenses	Costs directly tied to selling, such as real estate commissions, advertising and legal fees.
= Amount realized	Sale price minus selling expenses.
− Adjusted basis	What you paid for the home, plus certain closing costs from your purchase, plus improvements that are still part of the home, minus items like postponed pre-1997 gain.
= Gain (or loss)	If this is at or under your exclusion and you qualify, you generally owe no federal tax on it. A loss on a personal home isn't deductible.

Improvements that add to your basis

The IRS lists examples such as a new roof, central air conditioning or heating system, ductwork, wiring, a water heater, a kitchen modernization, flooring, a patio, landscaping, a fence, a lawn sprinkler system, storm windows and a swimming pool. Routine repairs and maintenance that don't add value or extend the home's life, like painting or fixing a leak, don't count, and neither do improvements you've since removed (IRS Pub. 523).

Hypothetical example (made-up numbers, not a real sale): You bought your home for $150,000 and paid $3,000 in closing costs that count toward basis. Over the years you put on a new roof, replaced the A/C and updated the kitchen for $45,000. Your basis is $198,000. You sell for $450,000 and pay $27,000 in selling expenses, so your amount realized is $423,000. Your gain is $225,000, which is under the $250,000 single exclusion and well under $500,000 for a married couple. Without the improvement receipts, the gain would look like $270,000.

The same receipts help you sell, too. Buyers in older communities ask about roof and A/C age first. See what buyers check in older 55+ homes.

If part of your gain is taxable

Federal rates: gain on a home you owned more than a year is long-term. Long-term capital gains are taxed at 0%, 15% or 20% depending on your taxable income, and for 2025 the rate on most net capital gain is no higher than 15% for most people (IRS Topic 409).
Net investment income tax: a 3.8% tax can apply to investment income, including taxable home sale gain, when modified adjusted gross income is over $200,000 (single) or $250,000 (married filing jointly). The part of the gain you exclude isn't counted (IRS Topic 559).
Arizona: any gain included in your federal adjusted gross income is taxed at the flat 2.5% rate. Arizona also lets you subtract 25% of net long-term capital gain from assets acquired after December 31, 2011 (2025 Form 140 instructions), so the date you bought the home can matter.
Medicare premiums: Social Security sets higher-income Medicare Part B and drug plan premiums (IRMAA) from your modified adjusted gross income on a recent tax return, generally from two years earlier. For 2026, extra premiums start above $109,000 for individuals and $218,000 for married couples filing jointly. Selling a home isn't on Social Security's list of life-changing events for a new decision (SSA). Gain you exclude isn't counted in your income (IRS Pub. 523), so this matters only if part of your gain is taxable. See our Medicare guide for West Valley retirees for free, unbiased local Medicare help.
Selling a home in another state? That state's rules apply to that home. For example, Washington's capital gains tax exempts real estate (Washington Department of Revenue). For other states, ask your tax professional. Moving from the Northwest or the Midwest? See the Washington and Michigan moving guides.

Paperwork at closing and at tax time

Form 1099-S: the person responsible for closing, usually the title or escrow company, generally files Form 1099-S. It may not have to if the sale price is $250,000 or less ($500,000 if you're married) and you sign a written certification that it's your main home and the full gain is excludable (IRS Instructions for Form 1099-S).
If you get a 1099-S, you report the sale on Form 8949 and Schedule D even if none of the gain is taxable (IRS Topic 701).
Keep your records: purchase and sale settlement statements and improvement receipts. The IRS says to keep them until 3 years after the due date of the return for the year you sell (IRS Pub. 523).

Your checklist before you list

Find your original purchase settlement statement (your title company may have a copy).
Gather receipts for the roof, A/C, water heater, remodeling and other improvements.
Write down the dates you lived in the home, and any time in a care facility.
If you're a surviving spouse, note the date of your spouse's death. The 2-year window for the $500,000 exclusion matters.
Look for any old Form 2119 if you sold a home before May 1997.
Meet with your tax professional before you set a closing date, especially if your gain may be close to or over your exclusion.
The Senior Freeze doesn't move with you. A change in ownership ends Senior Valuation Protection on the home you sell, and you can apply on your new home after you've lived there 2 years. See Arizona property tax breaks for seniors.
Get a realistic idea of your sale price. Greg can prepare a free, no-obligation home value based on recent sales in your community. Start on the What's my home worth? page.

Not tax advice. Greg is a real estate agent, not a tax professional. Please confirm anything on this page with your own tax advisor or CPA, or with the IRS or Arizona Department of Revenue, before you rely on it.

More help for West Valley 55+ homeowners getting ready to sell or downsize.

Frequently asked questions

Is there still a capital gains exemption for people over 55?

Not the old one. The one-time $125,000 exclusion for homeowners 55 and older only applied to sales before May 7, 1997. Today, homeowners of any age can exclude up to $250,000 of gain on the sale of a main home, or up to $500,000 for married couples filing jointly, if they meet the ownership and residence tests (IRS Publication 523).

How much profit can I make on my home sale without paying capital gains tax?

Up to $250,000 of gain if you're single, or $500,000 if you're married filing jointly, as long as you owned and lived in the home as your main home for at least 2 of the 5 years before the sale and didn't use the exclusion on another home in the past 2 years (IRS Publication 523). Gain is figured after selling expenses and improvements, not just sale price minus purchase price.

Can a widow or widower still exclude $500,000?

Possibly. A surviving spouse who hasn't remarried can exclude up to $500,000 if the home is sold within 2 years of the spouse's death and the other conditions are met. You can also count your late spouse's time owning and living in the home (IRS Publication 523).

What if I move to assisted living or a nursing home before selling?

If you become physically or mentally unable to care for yourself and lived in the home for at least 12 months of the 5 years before the sale, time in a licensed care facility counts toward the 2-year residence test (IRS Publication 523).

Does Arizona tax capital gains on a home sale?

Arizona starts from your federal adjusted gross income, so gain you exclude federally isn't taxed. Any taxable gain is taxed at Arizona's flat 2.5% rate, and Arizona allows a 25% subtraction for net long-term capital gain on assets acquired after December 31, 2011 (Arizona Department of Revenue).

Will selling my house raise my Medicare premiums?

Only if part of the gain is taxable and pushes your income over the limits. Social Security uses your modified adjusted gross income from a recent tax return, generally from two years earlier, to set higher Medicare premiums. For 2026 they start above $109,000 for individuals and $218,000 for married couples filing jointly (Social Security Administration). Excluded gain isn't counted in your income.

Can I use the exclusion on a snowbird or second home?

The exclusion is only for your main home, and you can have only one main home at a time. Gain on a second or vacation home generally doesn't qualify, and time after 2008 when a home wasn't your main home can reduce the exclusion (IRS Publication 523). Ask your tax professional before you sell.

Will I get a Form 1099-S when I sell?

Usually the title or escrow company files Form 1099-S. It may not have to if the sale price is $250,000 or less ($500,000 if married) and you certify that it's your main home and the full gain is excludable. If you do receive one, you report the sale on your return even if none of the gain is taxable (IRS).

Is this page tax advice?

No. Greg Slaughter is a real estate agent, not a tax advisor. This page is general information from IRS and Arizona Department of Revenue publications. Please talk with your own tax professional before you sell or make decisions.

Related guides

Thinking about selling your West Valley 55+ home?

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See homes for sale Get a Free Home Value Contact Greg Free Buyer's Guide (PDF)

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Sources (checked October 2026)

Every rule and dollar figure on this page comes from the IRS, the Arizona Department of Revenue, the Social Security Administration or the Washington Department of Revenue, checked October 20, 2026, with the year stated where it matters. Greg Slaughter is a real estate agent, not a tax advisor, and this page is not tax advice. Please consult your own tax professional about your situation. Programs, phone numbers, hours and dollar amounts change, so confirm with the agency or company before you rely on them. This page is general information, not legal, tax, insurance or medical advice.

Greg Slaughter, AZ License #SA665093000, Loving Phoenix Team, brokered by Real Broker AZ, LLC (AZ License #LC696641000). Equal Housing Opportunity.