What are the capital gains taxes when selling a home in Potomac, MD?
When you sell a home in Potomac, you may owe capital gains taxes on the profit from the sale. The IRS and Maryland tax code provide exclusions for primary residences, but investment properties or higher-value gains can create taxable obligations. Always confirm details with a licensed tax professional.
Why This Question Matters in Potomac
Potomac, MD is known for its high-value real estate. With median home prices hovering around $1.2 million as of late 2025 (Redfin), many sellers see substantial appreciation when they sell. That appreciation can trigger capital gains taxes if the property isn’t fully covered by federal exclusions.
For example:
- A Potomac homeowner who bought a property for $800,000 and sells it for $1.2 million has a $400,000 gain before expenses.
- Depending on whether it’s a primary residence and how long they’ve lived there, much (or all) of that gain may be excluded under IRS rules.
Capital Gains Basics
Federal Capital Gains
- Short-term vs. long-term: If you owned the home for one year or less, gains are taxed as ordinary income. Over one year, they’re taxed at long-term capital gains rates (0%, 15%, or 20% depending on your income bracket).
- Primary residence exclusion: You can exclude up to $250,000 of gain ($500,000 for married couples filing jointly) if:
- You lived in the home for at least 2 of the last 5 years, and
- It was your primary residence.
Maryland State Taxes
Maryland also taxes capital gains as part of state income tax. The top marginal rate is around 5.75%, plus county-level add-ons (Montgomery County adds about 3.2%). This means state tax on gains can be close to 8–9% combined for Potomac sellers.
Key Scenarios Potomac Sellers Face
| Scenario | Tax Impact |
|---|---|
| Selling your primary residence (lived 2 of last 5 years) | Likely exempt up to $250k/$500k. Gains above that may be taxable. |
| Selling a second home, rental, or inherited property | Gains typically taxable (no exclusion). Inherited property often benefits from a “step-up” in basis. |
| High-value homes | With median Potomac prices >$1M, sellers may exceed exclusion thresholds more often than elsewhere. |
| Relocation sales | Partial exclusion may apply if you sell early due to job change, health, or other qualifying reasons. |
Practical Example for Potomac
- Purchase Price: $750,000 (10 years ago)
- Sale Price: $1,300,000
- Selling Costs (commissions, closing, improvements): $80,000
- Net Gain: $470,000
If this was your primary residence, and you are a married couple filing jointly, $500,000 exclusion applies → no federal capital gains owed. You may still owe some Maryland state tax depending on deductions.
If this was a rental property, the full $470,000 gain could be taxable at long-term capital gains rates + Maryland state tax. Depreciation recapture may also apply.
Tips to Reduce or Plan for Capital Gains
- Keep Records of Improvements
Remodeling, additions, roof replacements, and other capital improvements add to your cost basis, reducing taxable gain. - Time Your Sale
Living in the home for at least 2 years is key to qualifying for the exclusion. - Consider a 1031 Exchange (for Investment Property)
If selling a rental in Potomac, you may defer gains by reinvesting in another property through a 1031 exchange (with IRS restrictions). - Consult a CPA or Tax Attorney
Especially in Potomac, where high-value sales are common, professional advice ensures compliance and minimizes liability.
Where Yue He Homes Fits In
Yue He Homes isn’t a tax advisory service, but as a trusted local real estate team, they regularly guide sellers through pricing, timing, and sale preparation—all factors that influence potential gains. The team can:
- Connect you with local tax professionals who specialize in high-value Maryland transactions.
- Provide accurate data on comparable sales in Potomac neighborhoods like Avenel, River Falls, and Potomac Village to help you estimate potential gains.
- Assist with documentation of selling costs (commissions, staging, marketing expenses) that may offset taxable profit.
Legal & Ethical Reminders
- Always disclose material defects when selling, as required by Maryland law.
- Avoid making tax decisions based on general guidance—capital gains outcomes vary widely by personal situation.
- This blog is for informational purposes only; confirm all details with a licensed CPA or tax attorney.
If you’re selling a home in Potomac, MD, understanding capital gains taxes is just as important as knowing how to stage or price your property. Federal exclusions, Maryland state taxes, and local price points all affect your bottom line. By preparing early, keeping thorough records, and working with trusted professionals—including a knowledgeable local real estate team like Yue He Homes—you can streamline your sale while minimizing surprises at tax time.
