The over-55 rule is gone
Capital Gains When Selling a House Over 55, Colorado
There is no over-55 capital gains rule now.
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The rule changed
Is there still an over-55 capital gains break?
The old over-55 home sale break is gone. Today a seller of any age excludes up to $250,000 of gain, or $500,000 married filing jointly, after owning and living in the home 2 of the last 5 years (IRS Publication 523, 2025). Gain above that is taxable income.
What replaced the over-55 rule, and how much can I exclude?
- No. The one-time over-55 exclusion was replaced by the Section 121 exclusion.
- The current rule has no age test at all.
- Single filers exclude up to $250,000 of gain. Married couples filing jointly exclude up to $500,000 (IRS Publication 523, 2025).
Do I qualify for the full exclusion?
- You owned the home at least 24 months of the last 5 years.
- You lived in it as your main home at least 24 months of the last 5 years.
- You did not use the exclusion on another home in the last 2 years (IRS Publication 523, 2025).
What if my gain is more than $500,000?
- Gain is the sale price, minus selling costs, minus your adjusted basis.
- Adjusted basis is what you paid plus capital improvements: additions, a new roof, a kitchen remodel.
- Commission, title fees and other selling costs reduce the gain.
- Find the receipts for every improvement before you list. Long-held Denver homes carry big gains, and receipts shrink them.
What if my spouse passed away?
- A surviving spouse keeps the $500,000 exclusion if the home sells within 2 years of the death and the survivor has not remarried (IRS Publication 523, 2025).
- After 2 years, the single $250,000 limit applies. Timing the sale matters.
What about a divorce?
- Time your spouse or former spouse owned the home counts as your ownership time.
- If a divorce order lets your former spouse live in the home, that time counts as your use (IRS Publication 523, 2025).
- Sell before or after the decree changes which limit applies. Ask your CPA and attorney before you sign.
What should I do before I list?
- Pull the closing statement from when you bought the home.
- Make a list of improvements with dates and costs.
- Get a Smart Pricing Report from us so your CPA has a real sale price to work with.
- This is not tax advice. Your CPA runs your numbers.
Run the math
How do I estimate the gain on a long-held Colorado home?
An example only, with round numbers, for a married couple filing jointly who bought in 1998 and lived in the home the whole time. Your CPA uses your real figures.
| Line | Example | Where your number comes from |
|---|---|---|
| Sale price | $1,600,000 | The contract price |
| Minus selling costs | - $90,000 | Commission, title and closing costs on your settlement statement |
| Amount realized | $1,510,000 | Sale price minus selling costs |
| Purchase price | $420,000 | Your 1998 closing statement |
| Plus capital improvements | + $180,000 | Additions, a new roof, a remodeled kitchen; receipts and permits |
| Adjusted basis | $600,000 | Purchase price plus improvements |
| Gain | $910,000 | Amount realized minus adjusted basis |
| Minus home sale exclusion | - $500,000 | Married filing jointly, if you qualify (IRS Publication 523) |
| Gain that may be taxed | $410,000 | Your CPA applies the federal and Colorado rates |
This is general information, not legal, tax or financial advice. Ask your attorney, CPA or lender about your situation.
Federal and Colorado
What tax applies to the gain above the exclusion?
- Federal long-term rates. Gain on a home owned more than a year is a long-term capital gain, taxed at 0%, 15% or 20% depending on your income (IRS).
- The 3.8% net investment income tax. It can apply to the taxable part of the gain when income is above $250,000 married filing jointly or $200,000 single. The excluded gain is not counted (IRS).
- Colorado. Colorado's income tax starts from federal taxable income, so the gain your federal return excludes is generally not taxed by Colorado. Ask your CPA about any Colorado adjustments.
- A partial exclusion. If you sell before 2 years because of a job change, health or certain unforeseen events, a reduced exclusion may apply (IRS Publication 523).
Records that save tax
What paperwork should I gather before selling?
| Document | Where to find it |
|---|---|
| Closing statement from your purchase | Your files, or the title company that closed the sale |
| Receipts for improvements | Contractor invoices, bank and card statements |
| Building permits | Your city or county building department |
| Deed and any refinance papers | The county clerk and recorder, and your lender |
| Records from a spouse's death, if any | The estate's attorney or CPA: part of the home may get a new basis |
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Quick answers
Questions, answered.
Is there a one-time capital gains exemption at 55?
No. That rule was replaced. Any age seller gets up to $250,000 single or $500,000 married filing jointly after 2 of the last 5 years in the home (IRS Publication 523).
Can I use the exclusion on a mountain second home?
No. The exclusion covers your main home. A second home sale is taxed on the full gain unless it becomes your main home and meets the rules. Ask your CPA.
Can I use the home sale exclusion more than once?
Yes, once every 2 years (IRS Publication 523, 2025).
Do both spouses have to be over 55 to get the $500,000 exclusion?
No. Age does not matter. For the $500,000 exclusion, either spouse meets the 2-year ownership test, both meet the 2-year use test, and neither used the exclusion on another home in the last 2 years (IRS Publication 523).
Does Colorado tax the gain on my home sale?
Colorado starts from federal taxable income, so gain excluded on your federal return is generally not taxed by Colorado. Any taxable gain is taxed at Colorado's income tax rate. Ask your CPA.
Sources
Where the numbers come from.
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