Capital Gains on a San Antonio Home Sale: the $250K/$500K Exclusion, Explained Straight

If you sell your San Antonio home and you've lived in it as your primary residence for at least two of the last five years, Internal Revenue Code Section 121 lets you exclude up to $250,000 of capital gain from federal income tax. Married filing jointly, it's up to $500,000. Texas has no state income tax, so for most Bexar County sellers, clearing Section 121 means the IRS takes nothing on the sale.

That's the short version. The long version — ownership tests, basis math, partial exclusions for a PCS move, the military 10-year suspension, what counts as "use" — is where sellers either save a lot of money or pay tax they didn't need to pay.

What Section 121 actually says

Two tests, both required, measured over the five years ending on the sale date:

• Ownership test — you owned the home for at least 24 months (not necessarily consecutive) in that 5-year window.
• Use test — you used it as your principal residence for at least 24 months (also not necessarily consecutive) in that same window.

For a married couple filing jointly to claim the full $500,000: both spouses must meet the use test, at least one must meet the ownership test, and neither can have used Section 121 on another sale in the prior two years. If only one spouse qualifies, the exclusion drops to $250,000.

The exclusion is per sale, not per lifetime. You can use it repeatedly — just not more than once every two years.

Gain, not sale price

Sellers routinely look at their closing statement, see a number like "$385,000 net to seller," and panic about capital gains. That's not the taxable number. Gain is:

Amount realized − adjusted basis = gain

• Amount realized = sale price minus selling costs (agent commission, title policy portion you paid, owner's title premium if you paid it, recording fees, seller concessions, prep repairs treated as selling expenses).
• Adjusted basis = original purchase price + capital improvements + closing costs you paid when you bought − any depreciation taken (if you ever rented it out).

On a home you bought in 78209 for $310,000 in 2016 and are selling for $525,000 in 2024, your gain isn't $215,000. After roughly $32,000 in agent and title costs and, say, $45,000 in a documented kitchen remodel and new HVAC, your gain is closer to $138,000 — well under the $250,000 single exclusion, let alone the $500,000 joint one.

Keep the receipts. The IRS doesn't accept "I'm sure we spent about $40K on the backyard."

What counts as a capital improvement

Things that add value, extend useful life, or adapt the home to a new use. Roof replacement, foundation repair (a real issue on the expansive clay soils south and east of downtown), adding a bedroom, replacing the HVAC system, replacing windows, adding a pool, re-piping, driveway replacement.

Not improvements: painting, normal repairs, lawn service, pressure washing, pest control. Those are maintenance — they don't raise basis.

The partial exclusion most San Antonio sellers miss

If you don't meet the full 24-month test, you may still qualify for a partial exclusion if the sale is due to:

• A change in place of employment (50+ mile distance test)
• Health reasons
• Unforeseen circumstances (divorce, multiple births from one pregnancy, death, job loss qualifying for unemployment)

The partial exclusion is prorated by months. Lived in the house 14 months before a qualifying job change? You get 14/24 of $250,000 (or $500,000) — about $145,833 single, $291,666 joint. That's almost always more than the gain on a 14-month hold in this market.

The military 10-year suspension

JBSA-Lackland, JBSA-Randolph, and JBSA-Fort Sam Houston cycle tens of thousands of families through Bexar County. Section 121 has a specific carve-out for them. A servicemember on qualified official extended duty (more than 90 days or indefinite, stationed 50+ miles from the home or in government quarters) can suspend the 5-year test for up to 10 years.

Practical effect: you bought in Schertz in 2015, PCS'd out in 2018, rented the house for six years, and are selling in 2025. Normally you'd blow the use test — you haven't lived there in the relevant 5-year window. With the suspension, those PCS years don't count against you, so your 2015–2018 residency still qualifies.

Depreciation taken during the rental years is still recaptured and taxed at up to 25% federally — the suspension saves the exclusion, not the recapture.

Texas doesn't tax the gain. The IRS still does.

Texas has no personal income tax, so there's no state capital gains tax on a home sale. What Texas does have:

• Homestead exemption (Tax Code § 11.13) — this reduces your property tax while you live there. It has nothing to do with federal capital gains. Filing Form 50-114 with BCAD affects your BCAD appraisal, not your IRS return.
• Transfer-related fees at closing — title, escrow, HOA transfer fees (common in Stone Oak, Alamo Ranch, Cibolo Canyons), and any municipal utility lien payoffs.

At closing, the title company issues a Form 1099-S to the IRS reporting the gross sale price unless you sign a certification that the entire gain is excludable under Section 121 and the price is at or below the thresholds. Ask the escrow officer about the Section 121 certification — if you qualify and sign it, no 1099-S gets filed. If one does get filed, you still report the sale on Form 8949 and Schedule D, then claim the exclusion there.

When a 1031 exchange is the wrong tool

1031 exchanges (IRC § 1031) defer gain on investment or business property. They do not apply to a primary residence. If you've lived in the home the whole time, Section 121 is your tool, not a 1031.

The interesting case is a converted rental. You lived in a home in Converse from 2019–2022, rented it from 2022–2025, and are selling in 2025. You can still claim Section 121 (you meet 2-of-5), but any depreciation taken while it was rented is recaptured. If gain exceeds the exclusion, a 1031 into another rental is off the table unless you convert and hold differently — talk to a Texas CPA before you list.

What most people get wrong

• Confusing homestead exemption with the federal exclusion. The BCAD homestead cap limits how fast your appraised taxable value can rise. It has zero effect on IRS capital gains. Two different systems, two different agencies.
• Forgetting to add closing costs to basis. Title policy, survey, lender fees you paid at purchase — they raise basis. Most sellers don't dig up the 2014 closing disclosure and miss $6,000–$10,000 of basis.
• Counting maintenance as improvements. Repainting the house before listing isn't a capital improvement. It's a selling expense (which still reduces amount realized) but it doesn't go into basis as a 2018 remodel.
• Assuming the $500,000 is automatic for couples. If one spouse didn't use the home as a principal residence for 24 months, you're capped at $250,000. Common in second-marriage situations where one spouse kept their own Alamo Heights house and the other kept theirs.
• Missing the partial exclusion on a short hold. A PCS to Germany after 18 months at JBSA-Randolph qualifies for a prorated exclusion. Owners who've held under two years often assume they owe full freight and don't even run the math.
• Taking the home office deduction and forgetting about it. If you depreciated a home office, that depreciation is recaptured at sale even if the whole property otherwise qualifies under Section 121.

Before you list

Pull your original closing disclosure. Build a basis worksheet: purchase price, buy-side closing costs, every capital improvement with date and amount, any depreciation if the property was ever rented or had a home office. Give that worksheet to your CPA before closing, not in April.

If gain looks like it'll exceed the exclusion — a long hold in 78209, 78212, 78258, or anywhere values have run hard — ask a Texas CPA about timing the sale, the partial exclusion rules, and depreciation recapture before you sign a listing agreement. The TREC 20-17 resale contract has no provision to fix a tax mistake made three weeks earlier.

When you're ready to move, RentInSA lists homes for sale and for rent across Bexar County. Owners selling on their own can list FSBO at /list-your-home, or find a Texas-licensed agent who works your ZIP at /agents. More sell-side guides live at /resources.