What will you actually keep after you sell your Boston luxury home? In a market where Greater Boston’s median price neared one million in mid‑2025, high‑value sales often interact with federal capital gains, Massachusetts tax, and closing fees. You want clarity before you pick a list date or accept an offer. This guide walks you through the tax rules that matter, Boston specifics, and smart planning steps so you can protect your proceeds. Let’s dive in.

Start with the federal basics

If this is your primary residence, begin with the home sale exclusion. Under Section 121, you may exclude up to $250,000 of gain if single or $500,000 if married filing jointly when you owned and used the home as your principal residence for 2 of the last 5 years. There are limits if you claimed the exclusion in the prior two years, had periods of non‑qualified use, or claimed depreciation on a rental portion. Review the ownership and use tests in the IRS guidance on the home sale exclusion.

Long‑term gains are taxed at preferential federal rates. Net long‑term capital gains fall into 0 percent, 15 percent, or 20 percent tiers depending on taxable income for the year of sale. Review how the tiers work in IRS Topic 409, then have your CPA run projections for your specific year.

High earners should check the 3.8 percent Net Investment Income Tax. NIIT applies to the lesser of your net investment income or the amount your modified adjusted gross income exceeds the threshold, which is $200,000 for single filers and $250,000 for married filing jointly. See the NIIT instructions to understand how the threshold interacts with a large home sale.

If you ever rented the home or used it for business, factor in depreciation recapture. Depreciation reduces your basis and increases taxable gain, and the portion attributable to depreciation is generally taxed at up to 25 percent. The exclusion does not apply to that portion. Review the IRS summary of depreciation recapture on home sales.

Massachusetts rules Boston sellers must know

Most long‑term capital gains are taxed at 5 percent in Massachusetts. The Commonwealth also imposes a 4 percent surtax on the portion of taxable income above the annually adjusted threshold, which is $1,083,150 for tax year 2025. Review current rates and surtax guidance on the Massachusetts Department of Revenue page.

Expect a deeds excise at closing. Massachusetts imposes a transfer excise commonly expressed as $4.56 per $1,000 of sale price, which equals about 0.456 percent. Local practice often assigns this cost to the seller, so confirm what your purchase and sale agreement states. For background, see this overview of the Massachusetts deeds excise. Boston policy makers have also discussed additional transfer fees for high‑value sales. Ask your closing attorney to confirm any updates the week of recording.

Market context matters. With Greater Boston’s median single‑family price near one million in mid‑2025, many luxury sellers will cross income thresholds that trigger NIIT or the state surtax on a portion of income. See the local snapshot reported by Axios Boston.

Quick net‑proceeds snapshot

Below is a simple illustration. Your actual outcome will depend on your basis, filing status, other income, deductions, and whether any portion was rented.

• Example: You sell a Back Bay condo for $6,000,000. Your adjusted basis is $4,000,000, so your gain is $2,000,000. You qualify for the $500,000 Section 121 exclusion, leaving $1,500,000 of long‑term gain.
• Federal long‑term capital gains tax (assume the 20 percent bracket applies to this gain): about $300,000. See Topic 409 for rate tiers.
• NIIT at 3.8 percent applies to the lesser of net investment income or MAGI over the threshold. If married filing jointly, the threshold is $250,000. On a simplified basis this could be about $47,500. See the NIIT instructions.
• Massachusetts long‑term gain at 5 percent: about $75,000. The state 4 percent surtax could add roughly $16,674 on the portion of taxable income above the 2025 threshold. See Massachusetts rates.
• Massachusetts deeds excise at approximately 0.456 percent of the $6,000,000 price: about $27,360. See deeds excise overview.

Total taxes and fees in this simplified scenario would be in the neighborhood of $466,534, before any depreciation recapture, short‑term treatment, or other adjustments. Your CPA can refine the numbers for your filing year.

Planning moves that protect your outcome

Confirm Section 121 eligibility

• Verify you meet the 2‑of‑5‑year ownership and use tests. Start here to potentially exclude $250,000 or $500,000 of gain. Review the IRS home sale exclusion.
• If you previously claimed the exclusion within two years, you may need to wait or see if a partial exclusion applies.

Raise your basis with solid records

• Gather invoices and permits for capital improvements. Closing costs and improvements can increase basis and reduce taxable gain.
• Keep settlement statements for your original purchase and planned sale.

Manage rental history and recapture

• If the home had rental or business use, confirm depreciation claimed or allowable. The exclusion does not cover the depreciation portion. See the IRS on depreciation recapture.

Defer tax on investment properties

• For property held for investment, a 1031 like‑kind exchange can defer tax if you follow strict timelines and use a qualified intermediary. Primary residences do not qualify. Review the IRS 1031 exchange instructions.

Time recognition and coordinate income

• If possible, close in a year when your taxable income is lower to potentially fall into a lower capital‑gains tier. Consider coordinating with year‑end bonuses, equity events, or retirement timing.
• Harvest capital losses in the same year to offset gains where appropriate.

Consider structured or charitable options

• Installment sales can spread gain across years, which may reduce exposure to higher brackets or NIIT in a single year.
• Philanthropic sellers sometimes use Charitable Remainder Trusts to sell appreciated real estate inside the trust without immediate capital‑gains tax at the donor level, then receive an income stream. These are complex and require specialized counsel.

Prepare early if you are a nonresident or foreign seller

• Sales by foreign persons are generally subject to federal FIRPTA withholding. Begin documentation and identification number requests well before listing. See FIRPTA withholding rules.
• Monitor Massachusetts guidance on any nonresident seller withholding requirements and coordinate with your closing attorney.

Pre‑list tax and closing checklist

• Confirm how much of your gain may be excluded under Section 121 and whether any non‑qualified use reduces that amount. See the IRS home sale guide.
• Build your adjusted basis file with improvement invoices, permits, and both settlement statements.
• Ask your CPA for a two‑step estimate that shows federal long‑term capital gains, NIIT, and Massachusetts tax including possible 4 percent surtax. Use IRS capital‑gains resources and Massachusetts rate guidance.
• If the property is an investment, decide before listing whether a 1031 exchange fits and engage a qualified intermediary. See the 1031 instructions.
• Confirm deeds excise responsibility in your purchase and sale agreement and verify the exact rate with your closing team. Review the deeds excise overview.
• If you are a nonresident or foreign seller, start FIRPTA and any state withholding steps early. See FIRPTA guidance.

The Boston advantage of preparation

Luxury sales in Back Bay, Beacon Hill, the Seaport, and surrounding enclaves reward early planning. When you know where your sale will land across the federal brackets, NIIT, and Massachusetts surtax, you can time your market debut, structure your contract, and negotiate with confidence. The result is simple. You keep more of what you have built.

If you are considering a sale this year, connect for a confidential, strategy‑first conversation. From pricing and positioning to timelines that align with your tax plan, Beth Dickerson brings boutique service and trusted market leadership across Boston’s top addresses.

FAQs

How do federal taxes apply when I sell my Boston primary residence?

• If you meet the Section 121 ownership and use tests, you may exclude up to $250,000 of gain if single or $500,000 if married filing jointly. Excess gain can be taxed at long‑term capital gains rates and may also trigger the 3.8 percent NIIT depending on income. See the IRS home sale exclusion and Topic 409.

What Massachusetts taxes and fees should I expect on a luxury sale?

• Most long‑term capital gains are taxed at 5 percent in Massachusetts, with a 4 percent surtax on the portion of taxable income above the 2025 threshold of $1,083,150, plus a deeds excise of about 0.456 percent of sale price at recording. See Massachusetts tax rates and the deeds excise overview.

What is the 3.8 percent Net Investment Income Tax and when does it hit?

• NIIT applies to the lesser of your net investment income or the amount your modified adjusted gross income exceeds $200,000 for single filers and $250,000 for married filing jointly, which often includes large real estate gains. Review the NIIT instructions.

Can I use a 1031 exchange to avoid tax on my Boston home sale?

• 1031 exchanges are available only for property held for investment or business use, not for primary residences. Strict identification and closing timelines apply. See the IRS like‑kind exchange instructions.

What should nonresident or international sellers expect at closing in Boston?

• Federal FIRPTA withholding generally applies to sales by foreign persons, and Massachusetts has considered nonresident withholding measures. Begin planning with your attorney and consult FIRPTA guidance early in your timeline.