Do You Pay Capital Gains Tax When Selling a House in NH?

es, while New Hampshire (NH) does not have a state-level capital gains tax on the sale of real estate, the profit you make from selling a house is subject to the Federal Capital Gains Tax.

For most homeowners selling their primary residence, the significant federal home sale exclusion means they will likely owe no capital gains tax at all. However, you will still need to account for the New Hampshire Real Estate Transfer Tax (RETT), which is a required closing cost.

The New Hampshire State Tax Situation

New Hampshire is known as a tax-friendly state because it lacks two major types of taxation.

1. No State Capital Gains Tax

New Hampshire does not levy a general personal income tax on wages, salaries, or capital gains. Consequently, the profit (or capital gain) you realize from selling your house in New Hampshire is exempt from any state-level capital gains tax. This is the primary difference compared to most other states, which would tax your profit at their normal income tax rates.

2. The Real Estate Transfer Tax (RETT)

While there is no state capital gains tax, you will be required to pay the New Hampshire Real Estate Transfer Tax (RETT) at closing. This tax is applied to the gross sale price, not the profit, and is paid by both parties.

• Rate: The RETT rate is $1.50 per $100 of the sale price. This is typically split evenly between the buyer and the seller, meaning each party pays $0.75 per $100 (or 0.75% of the total price).
• Example: For a home selling for $400,000, the total RETT is $6,000. The seller typically pays $3,000, and the buyer pays $3,000, though the split can be negotiated.
• Exemptions: This tax is required for almost all contractual property transfers unless specifically exempted (e.g., transfers between spouses as part of a divorce).

The Federal Capital Gains Tax (The Main Concern)

The profit from your home sale is always taxable at the federal level, subject to IRS rules and rates. Capital gains tax is calculated on the difference between the home’s final selling price and its adjusted basis (your original cost plus allowable expenses).

The Primary Residence Exclusion (Section 121)

This is the most critical factor for most homeowners and is the reason many will not owe any tax. The IRS allows you to exclude a significant amount of the gain from taxation if the property was your primary residence.

To qualify for the full exclusion, you must meet both the Ownership Test and the Use Test:

1. Ownership Test: You must have owned the home for at least two years during the five-year period ending on the date of the sale.
2. Use Test: You must have lived in the home as your primary residence for at least two years during the same five-year period.

If your profit (capital gain) is less than the applicable exclusion limit, you owe no federal capital gains tax on the sale of your primary residence.

Calculating Your Capital Gain

To determine if your profit exceeds the exclusion limit, you must accurately calculate your gain:

1. Net Sale Price

This is the final contract sale price minus allowable selling expenses:

2. Adjusted Basis

This is your original purchase price plus certain qualified costs:

Qualified Costs to Include:

• Capital Improvements: Additions that materially increase the home’s value or prolong its useful life (e.g., a new roof, adding a deck, replacing the HVAC system). Routine repairs (like painting a room) are not included.
• Original Closing Costs: Certain non-recurring closing costs paid when you bought the home (e.g., attorney fees, title insurance, and other closing costs not deducted in prior years).

Taxing the Excess Gain

If your capital gain exceeds the $250,000 or $500,000 exclusion, the excess amount is subject to the federal long-term capital gains tax rates (assuming you owned the home for more than one year). These rates are typically 0%, 15%, or 20%, depending on your overall taxable income.

Other Considerations for New Hampshire Sellers

Selling an Investment or Second Home

The generous $250,000/$500,000 exclusion does not apply to the sale of an investment property, rental property, or second home.

• Tax: Any gain on these properties is fully taxable at the federal long-term capital gains rates.
• Mitigation: If the property was a rental, you must also recapture any depreciation previously deducted, which is taxed at a maximum federal rate of 25% (Unrecaptured Section 1250 Gain).
• 1031 Exchange: For investment properties, sellers can potentially defer all federal capital gains tax by using a 1031 Exchange to reinvest the proceeds into a like-kind property.

Tax on Interest and Dividends (Phased Out in NH)

Historically, New Hampshire had a 3% tax on interest and dividends (I&D). However, this tax was fully phased out starting January 1, 2025. Therefore, as of 2026, there is no state tax on capital gains or on interest and dividends generated from the sale.

Given the complexities of calculating the adjusted basis and navigating the federal exclusion limits, particularly for those with significant gains or investment properties, it’s highly recommended to consult with a qualified tax professional before the closing.