Capital Gains Tax Exemption for People Over 65: What You Need To Know

Capital gains taxes can be a confusing and intimidating topic, especially for people over 65 who have spent decades building up investments, a business, real estate, and other financial holdings. The good news: seniors have more tools to legally reduce capital gains taxes than almost any other group of taxpayers.

In this guide, we cover what a capital gains exemption is, how it applies to people over 65, and the full range of strategies available. From tax-advantaged accounts and charitable giving to home sales and installment structures, Valur can help those over 65 minimize their tax burden and preserve more wealth.

What Is A Capital Gains Exemption?

A capital gains exemption is a provision in the tax code that allows an individual to avoid paying capital gains tax on some or all of the profit from selling an asset. Exemptions and exclusions exist for several types of assets and situations, including your primary home, certain retirement accounts, and specific investment structures.

Capital gains taxes fall into two categories:

• Short-term capital gains (assets held one year or less) are taxed as ordinary income, which can be as high as 37%.
• Long-term capital gains (assets held for more than one year) are taxed at preferential rates of 0%, 15%, or 20%, depending on your income.

For most seniors, long-term capital gains are the primary concern. The strategies in this guide focus on legally reducing or eliminating those taxes.

How Does it Work For People Over 65?

There is no blanket capital gains tax exemption based on age in the United States. People over 65 pay the same federal capital gains tax rates as everyone else. However, several factors often work in their favor:

• Lower taxable income in retirement. Many retirees earn less income than during their working years, which can push them into the 0% long-term capital gains bracket. For a married couple in 2026, they can have up to ~$98,000 of capital gains each year and pay $0 in federal capital gains taxes. 
• Access to tax-advantaged account structures. Seniors can use vehicles like Charitable Remainder Trusts (CRTs), IRAs, and other tools that shelter gains from immediate taxation.
• Stepped-up basis at death. Assets inherited by heirs receive a new cost basis equal to the fair market value at the time of death, effectively erasing decades of embedded capital gains.
• Greater flexibility on timing. Retirees who are not tied to a single income source often have more control over when they realize gains, which is a powerful planning lever.

Important Context: Many seniors are surprised to learn that they may owe 0% in federal capital gains tax on long-term gains; not because of a special senior exemption, but because their taxable income falls below the 0% threshold. Careful planning around income timing can make a significant difference.

The Power of the 0% Bracket: Bob & Nancy Example

For many retirees, the real opportunity isn’t just knowing that the 0% long-term capital gains rate exists; it’s understanding what eats into it. Every dollar of ordinary taxable income you recognize in a given year takes up space in that bracket before a single dollar of capital gains can use it.

The key is finding the right lever to pull. For Bob and Nancy, a retired couple, that lever is their traditional IRA withdrawal. Unlike a pension or Social Security, it’s discretionary; they choose how much to take. By shifting those draws away from their traditional IRA and toward their Roth IRA, which adds $0 to taxable income, they free up enough bracket room to absorb a $100,000 capital gain entirely at the 0% rate, resulting in zero federal capital gains tax owed. No special exemption. Just careful income positioning. 

Let’s look at how it works:

The takeaway: Bob & Nancy don’t need a special senior exemption to pay $0 in federal capital gains tax on a $100,000 gain. By leaning on their Roth IRA ( which contributes nothing to taxable income) instead of traditional IRA withdrawals, they can create enough room in the 0% bracket to absorb the entire gain. The difference between the base case and the optimized scenario is simply which account they pull from.

The Old “One-time” Capital Gains Exemption for Persons over 55

People may remember hearing about a one-time capital gains exclusion for homeowners over 55. That rule was real … but it was repealed in 1997. Under the old law, taxpayers 55 and older could exclude up to $125,000 of capital gains on the sale of a primary residence, once in their lifetime.

The Taxpayer Relief Act of 1997 replaced it with the modern Section 121 exclusion option, which is significantly more generous:

• The exclusion is $250,000 per person ($500,000 for married couples); double or quadruple the old amount.
• There is no age requirement. Any qualifying homeowner can use it.
• It can be used multiple times, once every two years.

 If you have seen references to a special one-time senior exemption, that information is outdated. The current law benefits all homeowners (including seniors) to use it alongside the broader strategies below.

Seven Ways People Over 65 Can Reduce Their Capital Gains Taxes?

Beyond the 0% bracket and the primary residence exclusion, seniors have a full toolkit of strategies available. Here are the most effective:

1.     Invest through a Charitable Remainder Trust (CRT): A CRT is one of the most powerful tools available to seniors with large, appreciated assets, whether that is stock, real estate, a business, or other assets. You transfer the asset into a tax-exempt trust, which sells it without triggering immediate capital gains tax. The trust then pays you (and optionally a spouse) an income stream for life or a fixed term. You also receive a partial charitable income tax deduction upfront. Whatever remains at the end goes to a charity of your choice. CRTs are especially effective for seniors who want income in retirement, have charitable intent, and hold assets with large, embedded gains.

2.     Use a Qualified Charitable Distribution (QCD) from your IRA: If you are 70½ or older, you can direct up to $105,000 per year (2025 limit) from your IRA directly to a qualified charity. The distribution is excluded from your taxable income entirely. It does not appear as income and therefore does not push you into a higher capital gains bracket. QCDs also count toward your Required Minimum Distribution (RMD), making them a highly efficient planning tool for charitably inclined seniors.

3.     Apply capital loss carryovers to offset gains: If you have realized capital losses in the current year ( or carried forward losses from prior years)  they can be used dollar-for-dollar to offset capital gains, reducing your taxable gain to zero (or near it). Any losses beyond your gains can offset up to $3,000 of ordinary income per year, with the remainder carried forward indefinitely. Seniors with volatile portfolios should review their loss carryover balance each year before deciding when to realize gains.

4.     Utilize tax-advantaged accounts: Retirement accounts like traditional IRAs and 401(k)s allow investments to grow tax-deferred; you pay no capital gains tax on appreciation inside the account. Roth IRAs go further: qualified distributions are completely tax-free, including gains. For seniors who have not yet maximized these accounts, contributing in years of lower income can be highly effective. CRTs (discussed above) are another form of tax-advantaged structure specifically suited to larger appreciated assets.

5.     Sell assets in installments: Rather than selling an appreciated asset all at once and recognizing the entire gain in one year, an installment sale allows you to spread the proceeds (and the associated taxable gain) across multiple tax years. This keeps each year’s income lower, potentially qualifying more of the gain for the 0% rate and avoiding higher brackets. Installment sales work well for seniors selling a business, rental property, or other illiquid assets where the buyer is willing to pay over time.

6.     Take the standard deduction: The standard deduction is a set amount used to reduce a taxpayer’s taxable income. The amount of the removal varies depending on the taxpayer’s filing status. Seniors can reduce their capital gains taxes by taking the standard deduction when filing their taxes.

7.     Invest in tax-exempt municipal bonds: Municipal bonds ( “muni bonds”) are debt securities issued by state and local governments. The interest earned is generally exempt from federal income tax( and in many cases, exempt from state tax too). While muni bonds do not eliminate capital gains directly, they generate income without adding to your taxable income. For seniors managing their income carefully to stay within the 0% capital gains bracket, replacing taxable bond income with muni bond income can free up room for other gains.

For many seniors, the largest single capital gain they will ever realize comes from selling a home they have owned for decades. This situation has its own dedicated tax treatment under IRS Section 121.

The Section 121 Exclusion: $250K / $500K

When you sell a home that has been your primary residence for at least two of the five years preceding the sale, you can exclude the following from federal capital gains tax:

• Up to $250,000 of gain if you file as single
• Up to $500,000 of gain if you file as married filing jointly

This exclusion can be used once every two years and is available to any qualifying homeowner; no age requirement applies.

Example: You bought your home in 2005 for $300,000 and sold it in 2025 for $750,000. Your capital gain is $450,000. If you are married filing jointly, $500,000 is excluded; you owe $0 in federal capital gains tax on the entire gain. If you are single, $250,000 is excluded and the remaining $200,000 of gain is subject to capital gains tax at your applicable rate (0%, 15%, or 20% depending on your income).

Qualifying for the Exclusion

To use Section 121, you must pass two tests:

• Ownership test: You owned the home for at least two years within the five-year period ending on the sale date.
• Use test: The home was your primary residence for at least two years within that same window. The two years do not need to be consecutive.

What if my Gain Exceeds the Exclusion?

If your home is appreciated beyond $250,000 (or $500,000), the amount above the exclusion is taxable. In that situation, the broader strategies covered in this article (installment sales, CRTs, or timing the sale to fall in a lower-income year) can help reduce or defer the remaining tax.

The Stepped-up Basis for Heirs

Seniors who plan to leave a highly appreciated home to heirs should also consider the step-up in basis. When an heir inherits property, their cost basis is reset to the fair market value at the time of death; eliminating any capital gain that accumulated during the original owner’s lifetime. For homes in high-appreciation markets, this can represent a substantial tax benefit to the family.

State-level Tax Breaks for Seniors

Many states offer additional tax relief for seniors that can complement federal strategies:

• Property tax exemptions or freezes for homeowners above a certain age or income threshold
• State income tax exclusions for retirement income (Social Security, pension, or IRA distributions)
• Reduced or eliminated state capital gains tax in states like Florida, Texas, Nevada, and Washington, which have no state income tax at all

Relocating to a lower-tax state before selling a large, appreciated asset is a legal and increasingly common planning move for seniors approaching a major liquidity event.

Next Steps

At Valur, we are your first step in helping you decide how to lessen your capital gains and determine what is the right tool for you and your wealth

We’ve built a platform that makes advanced tax planning accessible to everyone. With Valur, you can reduce your taxes by six figures or more, at less than half the cost of traditional providers.

From selecting the right strategy to handling setup, administration, and ongoing optimization, we take care of the hard work, so you don’t have to. The results speak for themselves: our customers have generated over $3 billion in additional wealth through our platform. Want to see what Valur can do for you or your clients? Explore our Learning Center, use our online calculators to estimate your potential savings or schedule a time to chat with us today!

Do seniors over 65 still pay capital gains tax?

Yes. The U.S. does not have a blanket capital gains exemption based on age. However, seniors have access to multiple legal strategies to reduce or eliminate the tax, and many retirees qualify for the 0% rate due to lower income in retirement. The key is understanding which tools apply to your specific situation, from Charitable Remainder Trusts to installment sales to careful income timing.

 Is there still a one-time capital gains exemption for seniors?

No. The old over-55 one-time exemption was eliminated in 1997. It was replaced by the Section 121 primary residence exclusion, which is actually more generous and available to all qualifying homeowners, not just seniors. Under Section 121, married filers can exclude up to $500,000 of gain on a home sale, compared to the old $125,000 one-time limit. If you have seen references to a special senior exemption, that information is outdated.

Do I pay capital gains tax when I sell my primary residence?

In most cases, no. IRS Section 121 lets you exclude up to $250,000 of gain from the sale of a primary home if you file as single, or up to $500,000 if you are married filing jointly, provided you have owned and lived in the home as your primary residence for at least two of the five years preceding the sale. This exclusion can be used once every two years and has no age requirement.

What is the capital gains tax rate for someone over 65?

The rate depends on your taxable income, not your age. In 2025, long-term capital gains rates are 0%, 15%, or 20%. Single filers with taxable income up to $48,350, and married filers up to $96,700, pay 0% on long-term gains. Many retirees fall into this bracket due to lower earned income after leaving work, which means careful income planning can result in paying nothing on appreciated assets.

What is a Charitable Remainder Trust and how does it reduce capital gains?

A Charitable Remainder Trust (CRT) is a tax-exempt trust that accepts appreciated assets (such as stock, real estate, or a business interest) and sells them without triggering immediate capital gains tax. The trust then pays you (and optionally a spouse) an income stream for life or a fixed term. You also receive a partial charitable income tax deduction in the year you fund the trust. Whatever remains at the end goes to a charity of your choice. CRTs are one of the most effective tools available to seniors who have large, embedded gains, want retirement income, and have some charitable intent.