Capital Gains Tax on a Home Sale in Indiana: What Hendricks County Sellers Need to Know in 2026

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Do I have to pay capital gains tax when I sell my home in Indiana?

Most Indiana homeowners who’ve lived in their primary residence for at least two of the last five years won’t owe any capital gains tax on the sale – federal or state. The IRS allows you to exclude up to $250,000 in gain if you’re single, or $500,000 if you’re married filing jointly, and Indiana follows the same exclusion rules. Any gain above those thresholds is subject to federal long-term rates (0%, 15%, or 20%, depending on your income bracket) and Indiana’s flat 2.95% income tax rate. This post is general educational information; your specific situation may differ, and a CPA or tax professional can help you calculate your actual liability.

By René Hauck, REALTOR® | May 7, 2026

If you’ve been putting off selling because you’re worried about a big tax bill, you’re not alone. It’s one of the most common concerns I hear from Hendricks County homeowners, especially those who’ve been in their home for 20 or 30 years and have watched its value climb.

Here’s the thing: for most Indiana sellers, that tax bill is either zero or much smaller than they expect.

The Rule That Protects Most Indiana Sellers

The IRS has a primary residence exclusion specifically designed for this situation. If you’ve owned your home and used it as your primary residence for at least two of the last five years, you can exclude:

• Up to $250,000 of your capital gain if you’re a single filer
• Up to $500,000 of your capital gain if you’re married and filing jointly

Your capital gain is calculated as: sale price − selling costs − your cost basis (generally your original purchase price, plus the cost of any documented capital improvements you’ve made over the years).

Example: You and your spouse bought your Plainfield home in 2004 for $185,000. You’re selling for $390,000. That’s a $205,000 gain — well under the $500,000 married exclusion. You owe $0 in capital gains tax, federal or state.

A few things worth knowing:

• The two years don’t need to be consecutive; they need to add up to 24 months within the five-year window before your sale
• You can only claim this exclusion once every two years
• It applies to your primary residence only – a rental, vacation home, or investment property doesn’t qualify

For most typical Hendricks County sellers who’ve been in their home five years or more, the exclusion covers their entire gain. That means no federal capital gains tax, and no Indiana state tax either.

If you’re also thinking through what you’ll net after commissions, title fees, and closing costs, that breakdown is covered in detail in the seller net proceeds guide for Hendricks County. The tax picture and the closing cost picture are separate calculations, and both matter when you’re planning your move.

When You Might Owe, and How to Reduce It

The exclusion isn’t unlimited, and with home values rising steadily over the past decade, more long-time homeowners are getting closer to those thresholds than they used to be.

Here’s when capital gains taxes can come into play:

You’ve exceeded the exclusion. If you’re single and your gain is more than $250,000, or married and your gain exceeds $500,000, you’ll owe taxes on the portion above that limit. The thresholds haven’t been adjusted since 1997, which means they haven’t kept pace with home value appreciation, something that’s starting to affect more downsizing sellers in markets like Plainfield, Avon, and Brownsburg. For the most current picture of local home values, check the Hendricks County market stats.

You haven’t met the 2-of-5-year rule. If you’ve moved out more than three years ago, rented the home out, or converted it from a primary residence, you may not qualify for the full exclusion. The rules here have some nuance, so if your situation isn’t straightforward, a CPA can walk you through the specifics.

Your home improvements weren’t documented. This is the one sellers most often overlook, and it can cost them real money. Every major capital improvement you’ve made adds to your cost basis, which reduces your taxable gain. A new roof, kitchen renovation, addition, HVAC replacement, or other improvements that added value or extended the life of your home all count. But documentation matters. Receipts and records work; estimates don’t. If you’ve put $50,000 into improvements over the years and have the paperwork, that reduces your taxable gain by $50,000.

If you’re not sure where your situation falls, reaching out to talk through the general picture is a good first step. I can help you think through your likely gain, and you can take those numbers to your CPA before making any decisions about timing.

Indiana’s Specific Treatment

Indiana doesn’t have a separate capital gains tax rate. The state taxes capital gains as ordinary income at its flat income tax rate, 2.95% for 2026, with a scheduled decrease to 2.9% by 2027 under current state law. For the federal rules, see link to IRS Topic No. 701 (Sale of Your Home). That rate applies to any gain that exceeds the federal exclusion.

Additionally, Indiana counties can levy their own income taxes. Hendricks County has a county income tax that would also apply to any taxable gain above the exclusion amount.

The key point for most sellers: Indiana follows the same $250K/$500K primary residence exclusion as the federal government. So if your entire gain is covered by the exclusion, you won’t owe state OR county tax on it either.

One more thing worth mentioning: if you sell your primary residence at a loss, you cannot deduct that loss on your taxes. Losses on personal-use property aren’t deductible at either the federal or Indiana state level. That’s an unusual situation in the current market, most long-term Hendricks County homeowners have real equity, but it’s worth knowing.

This post is for general educational purposes only. Tax rules are complex, individual situations vary, and nothing here constitutes tax advice. Please consult a qualified CPA or tax professional before making any financial decisions based on this information.

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Understanding your tax exposure before you list can change your entire approach. If you’ve been sitting on a decision because of tax concerns, let’s talk through the general picture for your home. Reach out here or call/text 317-987-7068. I’ll help you figure out the right questions to bring to your CPA.

Curious what your home is actually worth in today’s Hendricks County market? I’m happy to put together a personalized home valuation, no pressure, no obligation. Reach out here or call/text 317-987-7068.

Want to know what past clients say about working with me? Read my reviews on Google, Zillow, and Realtor.com.

Frequently Asked Questions

Do I have to pay capital gains tax when I sell my house in Indiana?

Most Indiana homeowners who’ve lived in their home as a primary residence for at least two of the last five years won’t owe any capital gains tax, federal or state. The IRS exclusion allows single filers to exclude up to $250,000 in gains, and married filers up to $500,000. Indiana follows the same exclusion rules. If your total gain falls within those limits, your tax liability is zero. Not sure where your gain falls? I’m happy to help you think through the estimate before you talk to your CPA.

What is the capital gains exclusion for home sales in Indiana?

Indiana follows the federal primary residence exclusion: up to $250,000 in capital gain is excluded for single filers, and up to $500,000 for married couples filing jointly. To qualify, you must have owned the home and used it as your primary residence for at least two of the five years before the sale. These thresholds have not been adjusted since 1997, which means long-time owners with significant appreciation may be getting closer to the limit than they expect.

How does Indiana tax capital gains on home sales?

Indiana doesn’t have a separate capital gains tax rate. The state taxes capital gains as ordinary income at its flat 2.95% rate for 2026, and Indiana counties levy an additional local income tax. Indiana follows the federal primary residence exclusion, so if your entire gain is covered by the exclusion, you owe no Indiana state or county tax. Any gain above the exclusion is taxed at the 2.95% state rate plus the applicable county rate.

What counts as a capital improvement that increases my cost basis?

Capital improvements that add value to your home or extend its useful life count toward your cost basis, things like roof replacement, kitchen or bathroom renovation, adding a bedroom or deck, a new HVAC system, or a finished basement. Routine maintenance does not count. Documentation is essential: keep receipts and records. Every dollar you add to your cost basis reduces your taxable gain dollar-for-dollar. If you’ve made significant improvements over the years, let’s factor that into our estimate together.

Do I have to report the home sale if I don’t owe taxes?

Yes, you may still need to report the sale on your federal return, even if no tax is owed, and your CPA can confirm.

Do seniors get a special capital gains exemption when selling their home in Indiana?

There is no age-based exemption for capital gains on home sales in Indiana or at the federal level. The same $250,000 or $500,000 primary residence exclusion applies regardless of age. However, seniors and downsizing homeowners who’ve been in their homes for many years may have gains approaching or exceeding the threshold, especially with home values rising and those limits unchanged since 1997. Tracking capital improvements made over the years is particularly important for this group. If you want to talk through your situation, I’m glad to help you think through the numbers before you meet with your tax professional.

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