Here’s your comprehensive 2025 guide to the most important tax strategies every Tennessee home seller should know.
1. Take Advantage of the Primary Residence Exclusion
One of the most powerful tools in a seller’s tax toolkit is the Section 121 Exclusion, often called the home sale tax exclusion.
You can exclude up to $250,000 of capital gains if you're single.
Married couples filing jointly can exclude up to $500,000.
To qualify:
You must have owned the home for at least two of the last five years.
It must have been your primary residence during those two years.
You haven’t used the exclusion for another home sale in the past two years.
Even if you didn’t live there continuously, as long as you meet the ownership and use test within a five-year window, you may qualify.
2. No State Capital Gains Tax in Tennessee
One of the major perks of living (and selling) in Tennessee is that there is no state capital gains tax. This means any profit you make on the sale of your home is only subject to federal taxes, keeping more money in your pocket.
3. Use a 1031 Exchange (For Investment Properties)
If the property you're selling is not your primary residence but an investment, you may be eligible to defer taxes using a 1031 Exchange.
Requirements:
The property must be held for investment or business use.
You must identify a replacement property within 45 days.
The new property must be purchased within 180 days.
A qualified intermediary is required to facilitate the process.
This strategy lets you reinvest your proceeds without immediately paying capital gains tax.
4. Increase Your Basis with Capital Improvements
Capital improvements you've made over the years can increase your cost basis, which in turn reduces your taxable gain. These include:
Major renovations or additions
New roofing or HVAC systems
Upgraded kitchens or bathrooms
Landscaping or fencing projects
Keep receipts and records to document these improvements.
5. Deduct Eligible Selling Expenses
Many of the costs associated with selling a home can be deducted from your sale price to help reduce your capital gains. These include:
Real estate agent commissions
Legal fees and escrow charges
Home staging or advertising costs
Necessary repairs made shortly before listing
6. Report the Sale Correctly
Even if you qualify for the exclusion, some sales must still be reported to the IRS:
Use Form 8949 to report the sale.
Transfer the result to Schedule D of your tax return.
Proper documentation ensures a smooth process and protects you in case of an audit.
7. Retirement Account Rollover Strategies
Another smart strategy is using the proceeds from your home sale to fund tax-advantaged retirement accounts:
Traditional IRA: Contributions may provide an immediate tax deduction, depending on your income and participation in an employer plan.
Roth IRA: Though contributions are not tax-deductible, Roth IRAs offer tax-free growth and withdrawals in retirement.
Long-Term Tax Optimization: Investing a portion of your home sale profits into retirement accounts can offer significant long-term tax advantages, particularly if you’re nearing retirement.
Consult your financial advisor to determine the best account type for your situation and how much you’re eligible to contribute.
8. Consult a Tax Professional
Every home sale is unique. Your income, the property’s use, and the market timing all influence your final tax bill. A CPA or tax advisor can help you:
Structure your sale efficiently
Avoid costly mistakes
Take advantage of all available deductions and exclusions
Final Thoughts
Selling your home in Tennessee can be financially rewarding, especially when you understand the tax benefits available. By planning ahead and consulting with professionals, you can keep more of your equity and confidently step into your next chapter.
Do you need a real estate consultation to discuss home value, prep, and selling strategy? Contact us today for a personalized plan.