Some do and many do not, and the dividing line is the federal home sale exclusion. Under the Internal Revenue Service guidance on selling a home, a seller who meets the ownership and use tests can exclude 250,000 dollars of gain, or 500,000 dollars for a married couple filing jointly, from taxable income (Internal Revenue Service, 2026). For a Redmond owner in ZIP code 98052 whose appreciation fits inside that shelter, the answer is no capital gains tax on the sale. For a longtime owner whose gain runs past the exclusion, capital gains tax applies to the excess, calculated in the tax return for the year of sale rather than withheld at the closing table. The full rules, worksheets, and exceptions live in the federal publication devoted to selling a home (Internal Revenue Service, 2025).
Two clarifications keep the picture clean. First, the Washington real estate excise tax is not a capital gains tax. It is a seller paid transfer tax, graduated from 1.1 percent on residential sales, and it is owed on the gross price whether or not the seller made any gain at all (Washington Department of Revenue, 2025). Second, gain is not the same as proceeds. Gain is the sale price minus selling expenses and minus the owner basis in the property, which is roughly the purchase price plus documented improvements. With national homeownership at 65.7 percent in late 2025 (U.S. Census Bureau, 2026), most sellers are working through exactly this exclusion framework, and Redmond owners with decades of Eastside appreciation are the ones most likely to test its ceiling.
Key Findings
- The federal exclusion shelters 250,000 dollars of gain for a single seller or 500,000 dollars for a married couple filing jointly, where the ownership and use tests are met (Internal Revenue Service, 2026).
- Gain above the exclusion is taxable as capital gain in the year of sale, under the rules and worksheets in the federal home sale publication (Internal Revenue Service, 2025).
- The Washington excise tax is a separate seller paid charge graduated from 1.1 percent, owed on the transfer regardless of gain (Washington Department of Revenue, 2025).
- Inherited property generally receives a stepped up basis to fair market value at the date of death, which shrinks or erases the taxable gain on a later sale (IRS, 2026).
- In divorce, the exclusion generally survives where the ownership and use tests are met, and transfers between spouses incident to divorce are typically not taxable events (Internal Revenue Service, 2025).
- Redmond appreciation is the reason the question matters locally: older homes in the sample averaged 34.7 percent of new build prices, with new construction selling between 1,800,000 dollars and 2,800,000 dollars, so long held properties can carry large embedded gains (Frontier Capitals, 2026).
How do the ownership and use tests decide the answer?
The exclusion turns on two tests that the federal guidance states plainly: the seller must have owned the home, and must have used it as a main home, for periods that satisfy the requirements within the five years before the sale (Internal Revenue Service, 2026). A Redmond owner who bought in the 1990s, lived in the home throughout, and sells now passes both tests on the documented facts of the case, and the only remaining question is the size of the gain relative to the 250,000 dollar or 500,000 dollar shelter. An owner who converted the home to a rental years ago, or who is selling a property that was never the main home, faces a different and less generous calculation.
The detailed publication walks through the edge cases: partial exclusions for sales driven by work moves, health, or unforeseen circumstances, the treatment of married couples where only one spouse meets a test, and the rules for widowed sellers (Internal Revenue Service, 2025). Those details matter in Redmond because household histories are long and varied. A couple who married after one partner owned the home, or a seller whose spouse passed away before the sale, should read the specific provisions rather than assume the headline exclusion applies in full.
Records decide close cases, which is why the paperwork of ownership matters. The county transaction record holds the purchase and sale deeds that establish dates and prices (King County Recorder, 2026), and the owner files on improvements establish the basis additions. A seller who cannot document a major remodel may lose the basis credit for it, converting what was really a return of invested money into taxable gain. The tax question is therefore partly a filing question and partly a record keeping question, and both parts reward preparation before the listing or the direct sale begins. The inherited property side of the same subject is treated in depth in what taxes apply when selling an inherited property in Redmond.
What happens with inherited and divorced sellers in Redmond?
Inherited property changes the basis, and basis changes everything. The basis of inherited property is generally stepped up to fair market value at the date of death (IRS, 2026), so an heir who sells an Education Hill home reasonably soon after inheriting it may owe little or no capital gains tax even at a high Redmond price, because the gain is measured from the stepped up value rather than from what the parent paid decades earlier. A date of death valuation from an appraiser is the document that locks that basis in, and heirs should arrange it early. The authority to sell runs through probate for most Redmond estates, with the personal representative appointed and the letters testamentary issued before a title company will insure the sale (Washington State Bar Association, 2026).
Divorce has its own documented treatment. Washington is a community property state, and the divorce divides the community equity in the home, but for federal tax the home sale exclusion generally survives divorce where the ownership and use tests are met, and transfers between spouses that are incident to divorce are typically not taxable (Internal Revenue Service, 2025). A couple selling the Redmond home as part of a settlement can therefore often use the full joint exclusion if the sale and filing posture are arranged to preserve it, while a spouse who takes the home in the settlement and sells years later works under the individual rules from that point. Sequencing, in divorce sales, is a tax decision whether the parties treat it as one or not.
Appreciation pressure is what pushes these cases toward the exclusion ceiling. Value tracking for 98052 shows the sustained rise in Redmond prices (Zillow, 2026), and the research sample quantifies the finished market those prices feed into (Frontier Capitals, 2026). A home bought for a modest sum in the 1980s and sold into the current market can carry a gain well beyond 500,000 dollars even after documented improvements are added to basis. That is the profile of the Redmond seller who genuinely owes capital gains tax, and it describes a meaningful number of the long tenure owners in this ZIP code.
One practical habit separates sellers who are surprised by a tax bill from sellers who are not: estimating the gain before the sale, not after it. The estimate needs three numbers, the expected price, the expected selling expenses, and the basis, and Redmond owners can assemble a rough version of all three from records already in their hands. Where the estimate lands far inside the exclusion, the seller can proceed without tax anxiety. Where it lands near or beyond the shelter, the seller has time to gather improvement documentation, to consider the timing of the closing across tax years, and to get professional advice while those choices still exist. The same estimate also disciplines price expectations, because a seller comparing two offers should compare them after tax wherever the gain is large enough for the tax to differ between them.
Is the state excise tax the same thing as a capital gains tax?
No, and confusing them leads sellers to double count or to miss one entirely. The excise tax is charged on the transfer, paid by the seller, graduated from 1.1 percent on residential sales, and it is due whether the seller gained, broke even, or lost money (Washington Department of Revenue, 2025). It behaves like a transaction toll. Capital gains tax, by contrast, is charged on profit: price minus expenses minus basis, and only on the slice of profit the federal exclusion does not shelter (Internal Revenue Service, 2026). A Redmond seller can owe the excise tax and no capital gains tax, which is the common case, or owe both, which is the longtime owner case, but the two are computed on different bases by different governments.
The proceeds calculation keeps them in separate lines for exactly this reason. The excise tax comes out at closing inside the seller closing cost block of 1 to 2 percent, alongside title and escrow. The capital gains tax, where it applies, is settled later through the return, and wise sellers reserve for it out of the proceeds rather than spending the full amount in the month after closing. The orderly way to assemble all of these lines for a specific property is laid out in how Redmond homeowners can calculate their net proceeds from a sale, and the broader research context for this submarket is collected on the coverage page.
What do sellers keep when a Redmond sale stays off market?
The first kept benefit is privacy, and it has a tax season dimension as well as a social one. An off market sale involves zero showings and zero open houses, so the transaction is negotiated and closed without public marketing. The gain calculation happens in private with the seller own advisors, not in the middle of a public listing campaign.
The second is timing control. A direct cash sale can close in 7 to 21 days, or be set months out with a leaseback, which lets a seller choose the tax year in which the sale lands when a closing date sits near a year boundary. A listed older home in 98052 takes 60 to 120 plus days from list to close, and that drift can push a December intention into a January closing without the seller ever choosing the shift.
The third is the commission. Listed sales in this market typically carry 5 to 6 percent in total commission, which is 45,000 to 54,000 dollars on a 900,000 dollar sale (National Association of Realtors, 2025). Because selling expenses reduce the amount realized, the commission also slightly reduces taxable gain where gain is taxable, but the seller still pays it in cash at closing. Keeping the whole line in a direct sale is worth far more than the small tax interaction it gives up.
The fourth is the closing cost block. Seller side closing costs commonly run 1 to 2 percent, and commissions plus closing costs together commonly total 54,000 to 72,000 dollars on a 900,000 dollar sale. A direct structure that shrinks that combined figure leaves more proceeds available to cover any capital gains reserve the seller needs to hold back.
The fifth is the absence of repair bargaining. An as is sale produces no 10,000 to 30,000 dollar repair credits and no post inspection price reductions, so the amount realized is the amount agreed, and the gain estimate the seller planned around does not move at the last minute because of an inspector list.
The disclosure: Frontier Capitals sources off-market deals to builders and is a wholesaler in the technical sense, not a builder, and not a tax advisor either. Sellers should verify any direct buyer by proof of funds dated within 30 days, recorded deeds in the buyer entity name, earnest money of typically 1 percent or more, and no assignment clause, and should verify their own tax position with a qualified professional.
Methodology and limitations
This report summarizes documented federal guidance on the home sale exclusion and the documented Washington excise tax, and applies them to the Redmond price context from the research sample of 36 older homes in 98052, 13 of them builder acquisitions. It is general information, not tax advice for any individual, and it does not compute any seller actual liability, which depends on filing status, basis records, prior use of the property, and other facts outside this research. No tax return was prepared and no title search was performed. Readers with gains near or above the exclusion should treat the federal publication as the starting text and a tax professional as the necessary second step.
Conclusion
Redmond homeowners pay capital gains tax only on the gain that survives the federal exclusion, 250,000 dollars or 500,000 dollars where the ownership and use tests are met, while the separate state excise tax applies to every sale regardless of gain. Inherited property usually restarts the basis at date of death value, and divorce sales generally preserve the exclusion when the tests are met, so the households most exposed are longtime owners selling appreciated primary homes. For a proceeds estimate on a specific 98052 property, call 401-219-4207 or email [email protected]. Do you know your basis in your home well enough to say, today, whether your gain would fit inside the exclusion?
Frequently Asked Questions
If my gain is under the exclusion, do I owe any tax on the sale?
Federally, no capital gains tax applies to the sheltered gain where the ownership and use tests are met (Internal Revenue Service, 2026). The Washington excise tax still applies, because it is a transfer tax on the sale price, graduated from 1.1 percent and paid by the seller, not a tax on gain (Washington Department of Revenue, 2025). Sellers sometimes hear the two described together and assume both vanish with the exclusion. Only the federal gains tax does.
How is my gain actually calculated?
Gain is the amount realized, broadly the sale price minus selling expenses such as commission, minus your adjusted basis, which starts with your purchase price and grows with documented improvements (Internal Revenue Service, 2025). Keeping invoices and closing statements from the original purchase and from major projects is what protects the basis figure. At Redmond appreciation levels, documented basis is frequently worth tens of thousands of dollars of sheltered gain.
Does selling to a builder change the capital gains treatment?
No. The exclusion and the gain calculation follow the property and the seller, not the buyer type, so a direct sale to a builder is taxed under the same rules as a listed sale (Internal Revenue Service, 2026). What changes is the expense side: a direct sale typically carries no listing commission, which slightly raises the amount realized while removing the cash cost entirely. The deed record of the sale establishes the date and price for the return in either route (King County Recorder, 2026).
What if I inherited the home I am selling?
Your basis is generally the fair market value at the date of death, stepped up from whatever the prior owner paid (IRS, 2026). A prompt sale after inheritance therefore often produces little taxable gain. The sale itself usually requires probate authority in Washington, with a personal representative appointed and letters testamentary in hand before title can be insured (Washington State Bar Association, 2026). An early date of death appraisal is the key document for the basis claim.
Can a divorcing couple still use the 500,000 dollar exclusion?
Generally yes, where the ownership and use tests are met for the sale, and transfers of the home between spouses incident to divorce are typically not taxable events (Internal Revenue Service, 2025). The sequencing of the sale relative to the decree and to each spouse filing status affects the details, so couples should have the tax posture reviewed before the home is sold or transferred. In a high appreciation market like Redmond, preserving the full joint exclusion can be worth a substantial sum.
Sources
- Internal Revenue Service, 2026. Topic 701, Sale of your home: $250,000/$500,000 exclusion, ownership and use tests. Government data.
- Internal Revenue Service, 2025. Publication 523, Selling Your Home. Government data.
- IRS, 2026. Basis of inherited property: generally stepped up to fair market value at date of death. Government data.
- Washington Department of Revenue, 2025. Real estate excise tax: graduated rates from 1.1% on residential sales, seller-paid. Government data.
- Frontier Capitals, 2026. 189 neighborhood builder acquisition sample: 36 homes sampled in 98052, 13 acquired by builders, average older home price 34.7 percent of new build. Market data.
- National Association of Realtors, 2025. Highlights From the Profile of Home Buyers and Sellers. Industry report.
- King County Recorder, 2026. Recorded deeds and transaction records, Redmond WA. Official record.
- U.S. Census Bureau, 2026. Quarterly Residential Vacancies and Homeownership, Q4 2025: homeownership rate 65.7%. Government data.
- Washington State Bar Association, 2026. Probate process and personal representative authority guidance. Official record.
- Zillow, 2026. Home values and recently sold, 98052. Market data.