Taxes on Selling Your Home in Connecticut

Selling a home in Connecticut isn’t just about closing the deal and celebrating your next chapter. It’s also about understanding what the state expects when it comes to taxes. Whether you’ve lived in your house for decades or only a few years, knowing how taxes work when selling a home in Connecticut can make the difference between keeping thousands in your pocket or sending them to the state.

This guide breaks down everything from capital gains to conveyance taxes, exemptions, and real-world strategies that Connecticut homeowners use to minimize their tax burden and sell with confidence.

Capital Gains Tax When Selling a House in Connecticut

When you sell your home for more than you paid for it, the profit you earn is called a capital gain. Connecticut, unlike some other states, taxes that gain as regular income. It doesn’t have a separate capital gains category or a reduced tax rate for long-term property ownership.

That means your gain from selling a house is added to your other income for the year and taxed based on your income bracket. Connecticut’s state income tax rates currently range from about 3% to 6.99%, depending on how much you earn.

To understand what this means in practice, imagine you bought your home for $400,000 and sold it for $550,000. Over the years, you spent $50,000 on renovations, bringing your adjusted cost basis to $450,000. Your profit, or gain, is $100,000. If you’re in the highest state income tax bracket, you could owe nearly $7,000 to the state.

Of course, there’s good news. If the home was your primary residence, you may qualify for a significant federal tax break that can also influence how much Connecticut tax you pay.

The Federal Home Sale Exclusion

Most homeowners qualify for the federal capital gains exclusion, which allows you to avoid paying federal tax on up to $250,000 in profit if you’re single, or $500,000 if you’re married filing jointly.

To qualify:

• You must have owned the home for at least two years.

• You must have lived in it as your primary residence for at least two of the five years before the sale.

If you meet these requirements, your gain may be fully excluded from federal taxes. And since Connecticut generally starts with your federal adjusted gross income when calculating your state income tax, this exclusion can help reduce your Connecticut tax burden as well.

However, you’ll still want to confirm your specific situation with a tax professional, because certain cases such as partial use as a rental or business property can make things more complicated.

Connecticut’s Real Estate Conveyance Tax

In addition to state income tax, Connecticut also charges a Real Estate Conveyance Tax every time a property changes hands. This is separate from your income tax and is usually paid by the seller at closing.

The conveyance tax is calculated based on the sale price of the property, not your gain. It has two parts:

• State conveyance tax: Generally 0.75% of the selling price up to $800,000 for residential property, and 1.25% on the portion above $800,000.

• Municipal conveyance tax: Each town can charge between 0.25% and 0.5% of the selling price.

For example, if you sell your home for $600,000 in a town with a 0.25% local rate, you’ll owe:

• $4,500 in state conveyance tax (0.75%)

• $1,500 in municipal tax (0.25%)

That’s a total of $6,000 paid at closing. It’s typically withheld right from your proceeds by the closing attorney or title company, so it’s not something you’ll have to pay separately later.

The One-Time Connecticut Exemption for Older Homeowners

Connecticut offers a unique benefit for seniors who’ve lived in their homes for many years. If you’re 65 or older, and you’ve owned and occupied your home for five of the last eight years, you may qualify for a one-time state income tax exemption on your gain when selling your primary residence.

This means you could potentially avoid paying Connecticut state income tax on the profit from your home sale entirely, even if your profit exceeds the federal $250,000 or $500,000 limits.

This exemption doesn’t apply automatically, so it’s important to document your years of ownership and occupancy, and discuss it with your tax preparer or real estate attorney well before closing.

Many retirees use this exemption when downsizing or relocating, especially when moving from high-cost counties like Fairfield or New Haven to smaller homes elsewhere in the state or out of state.

What If the Home Wasn’t Your Primary Residence?

Things get a bit more complicated if the home you’re selling wasn’t your main residence. This includes vacation homes, rental properties, or homes you inherited but never lived in.

In those cases:

• The federal exclusion doesn’t apply, since it’s only for primary residences.

• Your entire gain is subject to federal and Connecticut income taxes.

• You may need to recapture depreciation if you claimed it while renting the property.

If you inherited a home in Connecticut, your cost basis is typically stepped up to the home’s fair market value at the time of inheritance. So, if you sell it soon after inheriting, your taxable gain may be minimal.

Still, these cases can be tricky, especially if multiple heirs are involved or if the property has appreciated significantly. It’s worth having both a tax advisor and an attorney familiar with Connecticut real estate law look over your situation before listing.

Deductible Expenses That Can Reduce Your Gain

One of the easiest ways to reduce your taxable gain is by accurately tracking and including your selling expenses and home improvements. Many homeowners forget this step and end up overpaying.

Here’s what you can include in your cost basis or as deductions:

• Major home improvements such as new roofs, kitchen remodels, additions, or central air installation

• Selling costs like real estate agent commissions, legal fees, title insurance, or advertising

• Certain closing costs paid when you bought or sold the home

Routine maintenance or small repairs, like painting or fixing a leaky faucet, usually don’t count, but larger projects that add value or extend the home’s life definitely do.

Keeping clear records such as receipts, invoices, and photos makes all the difference when documenting your basis if the IRS or Connecticut Department of Revenue Services asks for proof.

How Timing Affects Your Tax Bill

Timing your sale carefully can make a major difference. For example, if you’ve only lived in the home for 23 months, selling just a month later could help you qualify for the federal exclusion. Likewise, waiting until you turn 65 could make you eligible for Connecticut’s senior exemption.

Even your income for the year matters. Because Connecticut taxes capital gains as ordinary income, selling during a year when your income is already high could push you into a higher tax bracket. Some homeowners plan large deductions, retirement contributions, or charitable giving in the same year as their sale to offset the added income.

Nonresident Sellers and Out-of-State Moves

If you’re moving out of Connecticut after selling, or if you’re a nonresident selling Connecticut property, your tax situation changes again. Nonresidents must generally file a Connecticut income tax return if they earned a gain from property in the state.

The Connecticut Department of Revenue Services may require withholding at closing for nonresident sellers to ensure taxes are paid. If you later file your state return and owe less than what was withheld, you’ll receive a refund.

This process can feel confusing if you’re relocating out of state, but it’s standard procedure and meant to protect the state’s tax interest.

Common Mistakes to Avoid

Even experienced homeowners can make simple errors that lead to bigger tax bills. Here are a few to watch out for:

• Not keeping records of home improvements. Without documentation, you can’t prove your higher cost basis.

• Assuming all home sales are tax-free. The exclusion only applies to your primary residence and certain ownership or use conditions.

• Forgetting about the conveyance tax. It’s a real cost at closing, often thousands of dollars.

• Ignoring residency rules. Moving out before closing or renting the home before the sale can affect your eligibility for exclusions.

• Overlooking the age-65 exemption. Many long-time homeowners miss out on this one-time Connecticut benefit simply because they didn’t plan ahead.

Final Thoughts: Plan Ahead, Sell Smart

Taxes on selling your home in Connecticut aren’t as simple as many think. Between capital gains, the conveyance tax, and varying exemptions, even a small oversight can cost you. The smartest move is to plan early, ideally before your home hits the market, so you can take advantage of every deduction and exclusion available to you.

As someone who has helped countless homeowners navigate this process, I’ve found that understanding your numbers early gives you control. It turns a stressful unknown into a clear plan.

If you’re selling a property and don’t want to deal with the complexities of the Connecticut tax system, you can also explore selling directly to a professional home buyer like Pavel Buys Houses. We’re a trusted nationwide company that purchases homes as-is, handles closing costs, and can help you close quickly, often in just days, without the long waiting period or uncertainty of a traditional sale.

Understanding your tax obligations before you sell is the best way to protect your equity and walk away confident. After all, you worked hard for that home, and it’s only fair you keep as much of your profit as possible.