Do you have to pay capital gains tax when you sell your house in Delaware?
Most Delaware homeowners don’t. If you’ve owned and lived in the home as your primary residence for at least two of the last five years, federal law lets you exclude up to $250,000 of profit ($500,000 if married filing jointly), and Delaware follows that exclusion. Any gain above that is taxed federally at 0%, 15%, or 20%, and by Delaware as ordinary income at up to 6.6%. Non-residents selling Delaware property also have to prepay an estimated tax at settlement on Form 5403 unless they qualify for an exemption.
By David Sordelet | October 6, 2026
Here’s the question I hear at almost every listing appointment once we get past price: “How much of this am I going to lose to taxes?”
For most sellers in Newark, Middletown, Bear, Pike Creek, and Dover, the honest answer is nothing — at least not in capital gains tax. But “most” isn’t “all,” and the sellers who get surprised are usually the ones who bought decades ago, turned the house into a rental, inherited it, or no longer live in Delaware.
Let’s walk through how it actually works so you know where you stand before you list.
Quick note: I’m a real estate broker, not a CPA or tax attorney. This post explains how the rules generally work. Your tax professional should confirm the numbers for your specific situation.
The $250,000 / $500,000 home sale exclusion
Under Section 121 of the Internal Revenue Code, you can exclude a large chunk of your profit from tax when you sell your main home:
$250,000 if you file single
$500,000 if you’re married filing jointly
To qualify, you generally need to pass two tests during the five years before the sale:
Ownership test — you owned the home for at least two years
Use test — you lived in it as your main home for at least two years
The two years don’t have to be back-to-back, and they don’t have to be the same two years. You also can’t have used the exclusion on another home sale in the past two years.
Delaware doesn’t add its own rule here. Delaware’s income tax starts from your federal adjusted gross income, so gain that’s excluded federally isn’t taxed by Delaware either.
What “gain” actually means
Your gain isn’t sale price minus what you paid. It’s:
Sale price − selling costs − adjusted basis = gain
Your adjusted basis is what you paid for the home, plus certain purchase closing costs, plus the cost of capital improvements — a new roof, an addition, a kitchen remodel, a finished basement, a new HVAC system. Routine repairs and maintenance don’t count.
Your selling costs include agent commission, your share of Delaware’s 4% realty transfer tax (typically split 2% buyer / 2% seller), attorney fees, and other closing expenses. If you want to see what those look like on a real sale, I broke them down in how much it costs to sell a house in Delaware.
This is why your receipts matter. A seller who can document $80,000 in improvements over 20 years can have a dramatically different tax picture than one who can’t.
Two Delaware examples
Example 1 — Newark couple, no tax. A married couple bought in Newark in 2009 for $215,000 and put $35,000 into a roof, windows, and a bathroom. They sell for $420,000 and pay about $30,000 in selling costs.
Adjusted basis: $250,000
Net sale: $390,000
Gain: $140,000 — well under their $500,000 exclusion
Capital gains tax owed: $0. That’s the reality for the large majority of Delaware sellers I work with.
Example 2 — Long-time Hockessin owners, some tax. A married couple bought in 1996 for $240,000, added $90,000 in improvements, and sell for $925,000 with about $60,000 in selling costs.
Adjusted basis: $330,000
Net sale: $865,000
Gain: $535,000
Minus $500,000 exclusion = $35,000 taxable
At a 15% federal rate, that’s roughly $5,250 federal. Delaware taxes that $35,000 as ordinary income — at 6.6% if they’re already in the top bracket, that’s about $2,310. Real money, but a long way from the “we’ll lose half to taxes” fear I sometimes hear.
When Delaware sellers do owe capital gains tax
Here’s where people get caught off guard.
You’ve owned the home a long time
Long-time owners in North Wilmington, Hockessin, and parts of the beach areas in Sussex County can have gains above the exclusion — especially single sellers, who only get $250,000.
Widowed sellers, take note: a surviving spouse can generally still use the full $500,000 exclusion if the home sells within two years of the spouse’s death and the other requirements are met. Timing matters here, so talk to your CPA before you decide when to list.
The house was a rental
If you rented the home out, two things change:
Depreciation recapture. Depreciation you took (or were allowed to take) as a landlord is taxed at up to 25% federally when you sell — even if the rest of your gain is excluded.
Non-qualified use. If you rented it before moving back in, part of the gain may not qualify for the exclusion.
Investors selling a pure rental may look at a 1031 exchange to defer the tax by buying another investment property. That’s a strict, deadline-driven process — line up a qualified intermediary before you go under contract.
You inherited the house
Inherited homes usually get a “stepped-up” basis — the value on the date of death, not what your parents paid in 1985. If you sell reasonably soon after inheriting, the gain is often small or zero. If you hold it for years, the gain from the date of death forward is taxable, and you probably won’t qualify for the home-sale exclusion unless you moved in and lived there for two years.
You don’t meet the two-year rule
Sold before two years because of a job relocation, health reason, or certain unforeseen circumstances? You may qualify for a partial exclusion. Sold for other reasons before two years? The gain is taxable — short-term rates apply if you owned it a year or less.
How Delaware taxes the gain — and the Form 5403 at closing
Delaware doesn’t have a separate capital gains rate. Taxable gain is added to your other income and taxed at Delaware’s regular rates, which top out at 6.6% on income of $60,000 or more. Federal long-term rates remain 0%, 15%, or 20% depending on your income, and higher earners may also owe the 3.8% net investment income tax on taxable gain.
One Delaware-specific break worth knowing: if you’re 60 or older, Delaware lets you exclude up to $12,500 a year of pension and eligible retirement income — and eligible retirement income includes capital gains. It won’t erase a large gain, but it can shave the Delaware bill.
Every Delaware seller signs a Form 5403
At settlement, your closing attorney will have you complete Delaware Form 5403, the Declaration of Estimated Income Tax for real estate transfers. The deed doesn’t get recorded without it.
Delaware residents complete the form to certify they’re residents. No payment is due at closing.
Non-residents (including people who moved out of state, out-of-state heirs, and second-home owners) must prepay estimated Delaware tax at closing — 6.6% of the estimated gain — unless an exemption applies. It’s paid out of your proceeds before the deed is recorded.
If you’re a non-resident and the gain qualifies for the home-sale exclusion, you can claim the exemption on the form instead of prepaying. Either way, you’ll reconcile it on your Delaware non-resident return, and any overpayment comes back to you as a refund.
Because Delaware is an attorney state, your settlement attorney handles this paperwork — but they can only work with what you give them. If you live out of state or you’ve inherited the property, tell your agent and attorney early so the numbers on your settlement statement aren’t a surprise. (More on how settlement works in how closing attorneys and title companies work in Delaware and Maryland.)
What to do before you list
If you’re planning a sale in the next 6–12 months, here’s what I’d do now:
Find your closing statement from when you bought. That’s the starting point for your basis.
Gather improvement receipts — roof, HVAC, additions, remodels, windows, decks, finished basements.
Confirm your ownership and residence dates against the two-out-of-five-year test.
Get a realistic sale price, not a Zestimate. Your gain is only as accurate as the price you plug in.
Take all of it to your CPA before you sign a listing agreement, especially if the home was ever a rental, was inherited, or you’ve moved out of Delaware.
Timing can matter too. Selling in December versus January moves the gain into a different tax year — which can help if this year’s income is unusually high or low. I covered the market side of that decision in should you sell now or wait for spring in New Castle County.
This is exactly the kind of conversation I have with sellers before we ever set a list price. The tax piece belongs to your CPA. The sale price, the selling costs, and the timeline — that’s where I come in, and those numbers drive everything else.
Frequently Asked Questions
Does Delaware have a capital gains tax on real estate?
Delaware doesn’t have a separate capital gains tax. Taxable gains are treated as ordinary income and taxed at Delaware’s regular rates, which top out at 6.6% on income of $60,000 or more. If your gain qualifies for the federal home-sale exclusion, Delaware doesn’t tax it either.
How much profit can I make on my house without paying taxes?
If you’ve owned and lived in the home as your primary residence for at least two of the last five years, you can generally exclude up to $250,000 of gain as a single filer or $500,000 as a married couple filing jointly. Gain is figured after subtracting your selling costs and your adjusted basis, which includes capital improvements.
What is Delaware Form 5403?
Form 5403 is the Declaration of Estimated Income Tax that must be filed with the deed on every Delaware real estate sale. Residents complete it to certify residency and pay nothing at closing. Non-residents generally prepay estimated tax at 6.6% of the estimated gain unless they claim an exemption, such as the primary residence exclusion.
Do I pay capital gains on an inherited house in Delaware?
Usually only on the increase in value after the date of death, because inherited property generally receives a stepped-up basis. If you sell soon after inheriting, the taxable gain is often small. If you live out of state, expect to complete Form 5403 at closing as a non-resident.
Do I pay capital gains if I use the money to buy another house?
Not for that reason. The old rule that let you roll your gain into a new home ended in 1997. Today the $250,000/$500,000 exclusion applies whether or not you buy again, and a 1031 exchange is only available for investment or business property, not your primary home.
Most Delaware sellers walk away from their sale without owing a dime in capital gains tax — but the ones who’ve owned a long time, rented the home out, inherited it, or moved out of state need to run the numbers before they list, not after.
If you’re curious where you stand, request your free Home Equity Report — it’ll show you your home’s current value, how much equity you’ve built, and what’s happening with prices and inventory right in your neighborhood. Get your free report at search.teamsordelet.com/seller.
About David Sordelet
Looking for a trusted real estate professional in Delaware or Maryland who can help you make smart choices? Look no further than David Sordelet, Designated Broker of Real Broker Delaware and Team Leader of Team Sordelet.
With over two decades of experience, 1,000+ successful transactions, and 200+ five-star client reviews, David is recognized as one of the region’s leading real estate experts. Licensed as the Designated Broker in Delaware and an Agent in Maryland, he provides unmatched knowledge of Wilmington, Newark, Hockessin, Dover, Middletown, and the Maryland Eastern Shore.
David understands that in real estate, who you work with matters most. That’s why he combines personalized service, clear communication, and expert negotiation with the most modern marketing strategies and cutting-edge technology to achieve exceptional results for his clients.
Whether you’re a first-time homebuyer, a move-up family, an investor, or a seller looking to maximize value, David Sordelet is the proven real estate professional you can count on.
License: RB-0031238-DE / 5013138-MD
This article is general information, not tax or legal advice. Tax rules change and every situation is different — consult a CPA or tax attorney about your specific sale.
