A $140,000 house now costs $90,000 to sell

A 74-year-old widow bought her home in 1988 for $140,000. It's now worth mid-$700,000s, but federal and state taxes on the sale will eat up roughly $90,000 of her profit.

Congress froze a tax break in 1997

The Taxpayer Relief Act of 1997 let single filers exclude $250,000 of home-sale gains, or $500,000 if married. Those limits were never adjusted for inflation and remain unchanged today.

Housing prices have soared since then

The S&P CoreLogic Case-Shiller index sits near 337, up from 100 in January 2000. A home bought in 1988 has ridden nearly four decades of appreciation while the tax exclusion stayed frozen.

The gain gets taxed at 15% to 24%

Her $550,000+ gain exceeds the $250,000 exclusion by hundreds of thousands. The excess is taxed as long-term capital gain at 15%, plus 3.8% net investment income tax, plus state income tax.

Cost basis is the number that matters most

Every dollar added to cost basis erases a dollar of taxable gain. Capital improvements like a roof, kitchen remodel, HVAC replacement, deck, or driveway all count. Documenting $60,000 in forgotten improvements saves over $10,000 in taxes.

Rebuild basis with permits and receipts

Pull permits from town records, credit card statements, canceled checks, and contractor invoices. This tedious work pays roughly $200 to $240 per hour in tax savings for every dollar of improvements documented.

“This is boring work that pays roughly $200 to $240 per hour in tax saved for every dollar of improvements documented.”

Or skip the sale and let heirs inherit

Appreciated assets get a step-up in basis at death, wiping out the embedded capital gain entirely. A reverse mortgage or HELOC can unlock cash without triggering the sale, but staying in an unwanted house purely to dodge tax is usually a mistake.

For most people, selling and rebuilding wins

Maintenance, property tax, insurance, and stair-climbing risk all compound over time. With existing-home sales at just 3.98 million annualized in August 2026, waiting for a hotter market is a gamble most 74-year-olds should not take.

Widows have a two-year window to act

A surviving spouse can claim the full $500,000 exclusion for up to two years after the spouse's death, if ownership and use tests are met. Missing that window by a few months is the most expensive mistake in this scenario.