Capital Gains Tax When Selling a Home in Utah

Does Utah have a capital gains tax?

Utah does not have a separate capital gains tax. It taxes capital gains as ordinary income at its flat individual income tax rate, 4.45% for 2026 (Utah Code § 59-10-104). There is no lower rate for long-term gains.

Utah's return starts from your federal adjusted gross income, and the Tax Commission's instructions say to report it exactly as it appears on your federal return. So any gain you exclude federally on your home sale, or defer federally in a 1031 exchange, is also excluded or deferred for Utah.

If you live out of state, Utah can still tax the gain: income from owning real property in Utah is Utah-source income (§ 59-10-117).

How does the $250,000 / $500,000 home sale exclusion work?

Under the federal home sale exclusion (IRS Topic 701 and Publication 523), you can exclude up to $250,000 of gain, or $500,000 on a joint return, if you meet both tests:

• Ownership test: you owned the home for at least 24 months of the 5 years before the sale.
• Use test: you lived in it as your main home for at least 24 months of those 5 years. The two years do not have to be the same two years, or continuous.

For the $500,000 joint exclusion, either spouse can meet the ownership test, but both must meet the use test. Generally you can only use the exclusion once every two years.

If you did not live there two years

You may still get a partial exclusion if you moved because of a new job at least 50 miles farther away, for health reasons, or because of an unforeseeable event, such as a death, divorce, multiple births from the same pregnancy, job loss, or the home being destroyed. Members of the uniformed services, Foreign Service, and intelligence community on extended duty can suspend the five-year clock for up to 10 years.

How do you figure the gain on a home sale?

Keep receipts for improvements like an addition, a finished basement, a new roof, or landscaping. Repairs and maintenance generally do not count. If you inherited the home, your basis is usually its fair market value on the date of death, which often wipes out most of the gain.

Example: a Utah County family home

Federal tax on the $4,000 would be 0%, 15%, or 20% depending on the couple's other income.

Illustration only, with made-up numbers. Not tax advice.

For what those selling costs typically include, see the cost to sell a house in Utah.

What are the federal capital gains rates for 2026?

Gain on property held more than one year is long-term and taxed at 0%, 15%, or 20%, depending on your taxable income. Property held one year or less is taxed at your ordinary income rates. For 2026, IRS Revenue Procedure 2025-32 sets these limits:

Higher earners may also owe the 3.8% net investment income tax on gain above the exclusion when modified adjusted gross income is over $250,000 (joint) or $200,000 (single). The excluded part of a home sale gain is not subject to it.

How are rental properties taxed when sold in Utah?

A rental is not your main home, so the $250,000 / $500,000 exclusion does not apply. Two things raise the tax:

• Depreciation recapture. The depreciation you took (or could have taken) lowers your basis. That part of the gain, called unrecaptured section 1250 gain, is taxed federally at up to 25%.
• Utah tax on the whole gain at 4.45%.

Example: selling a rental townhome

Illustration only, with made-up numbers. Federal tax depends on your total income.

The way to defer all of it is a 1031 exchange into other investment real estate. Utah follows the federal deferral. See our Utah 1031 exchange guide.

Rentals you used to live in, and homes you used to rent

• Moved out and rented it? If you sell within three years of moving out, you can still meet the two-of-five-year use test. Depreciation taken while it was rented is still taxed.
• Rented it, then moved in? Gain allocated to periods after 2008 when it was not your main home ("nonqualified use") generally cannot be excluded, though time after you move out within the five-year window does not count against you.

How can you reduce capital gains tax on a Utah home sale?

1. Meet the two-year tests before you sell, if the timing is close.
2. Track your basis. Improvements add up over decades.
3. Time the sale. A year with lower income can mean a 0% or 15% federal rate.
4. Use a 1031 exchange for rentals and investment property.
5. Consider an installment sale. If you carry financing, the gain can be spread over the years you are paid, and you keep the home sale exclusion. See seller financing in Utah.
6. Talk with your CPA before you list, not after you close.