Understanding Capital Gains Taxes When Selling Your Minnesota Property

Selling a house in Minnesota can be a big financial win, but it may also come with a tax bill. Capital gains tax is one of the most overlooked aspects of selling real estate, and it can catch sellers off guard if they don't plan ahead.

Whether you're cashing out on a rental property or selling your primary residence, here's what you need to know about capital gains taxes in Minnesota, and how to navigate them wisely.

Working with cash home buyers like MSP Offer can also simplify the process, since they close quickly and reduce the variables that might affect your tax planning.

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Capital Gains Taxes

Capital Gains Taxes and What They Mean for You

Capital gains tax is the tax you pay on the profit (or "gain") from selling your property. It applies when your sale price exceeds your adjusted basis, usually what you paid for the home, plus improvements, minus depreciation and expenses.

There are two types:

  • Short-Term Capital Gains: For properties held less than 1 year
  • Long-Term Capital Gains: For properties held over 1 year (usually taxed at a lower rate)

Note on Rental Properties: If you've been renting out your home, the IRS requires you to "recapture" any depreciation you claimed. This means that portion of your profit is taxed separately, often at a higher rate (up to 25%).

For example, if you depreciated $30,000 over the years, that $30,000 will be taxed as depreciation recapture in addition to regular capital gains.

Question: Do All Home Sellers Pay Capital Gains Taxes?

No. There are key exemptions, especially if you're selling a primary residence.

You may exclude up to $250,000 of profit if:

  • You've owned and lived in the home for at least 2 of the past 5 years
  • You haven't used the exemption in the last two years
  • The home was your primary residence

For married couples filing jointly, the exemption doubles to $500,000.

If you're under these thresholds, you likely won't owe federal capital gains tax.

Hear From Other Homeowners

Homeowners across Maryland trust MSP Offer to make their probate property sales seamless and stress-free. Here's what they have to say about their experience.

"Gene was great! Very professional and easy to talk with about all the steps involved."

Antoinette Walker - Review - MSP Offer

Antoinette Walker

2024-07-23

"Very patient and able to close fast!"

Xai Xiong - Review - MSP Offer

Xai Xiong

2024-03-20

"Gene was great very transparent about the process making it easy and stress free!"

Erica Roper - Review - MSP Offer

Erica Roper

2024-07-19

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Here's How Minnesota Taxes Capital Gains

While federal capital gains may be excluded, Minnesota treats capital gains as income, even if it's from your primary home.

This means:

  • You'll pay state income tax on your gains, even if exempt federally
  • Minnesota's state income tax ranges from 5.35% to 9.85%, depending on income
  • No separate "capital gains tax rate" applies, just your standard income bracket

So even if you avoid federal tax, you could still owe Minnesota taxes on your profit.

Even if you qualify for the federal $250,000/$500,000 home sale exclusion, Minnesota law does not recognize that exemption. The state treats capital gains as regular taxable income, which means you could still owe state taxes on the profit from your home sale.

For example, if you sold your primary residence in Minneapolis and made $200,000 in profit, you wouldn't pay federal capital gains tax (because you're under the $250,000 limit for single filers).

However, Minnesota would still tax that $200,000 at your regular state income tax rate, which ranges from 5.35% to 9.85%.

A Fast Cash Sale Can Simplify Tax Planning

If you're facing:

  • A tight closing timeline
  • An estate situation
  • A rental or inherited property
  • Financial pressure (divorce, job relocation, etc.)

...a quick home sale for cash allows you to lock in your gain and start planning early. Many Minnesota sellers choose local cash home buyers in these situations because they eliminate delays tied to financing and give sellers more control over timing.

Unlike traditional sales, cash offers:

  • Move fast (typically close in 7 to 14 days)
  • Offer clear, upfront pricing
  • Allow you to control your closing date (vital for tax-year planning)

Selling quickly gives you more flexibility to manage gains, apply exemptions, and prepare for tax season.

Having trouble with managing offers? See How to Handle Multiple Offers When Selling Your Home.

Question: Should You Consult a Tax Professional?

Yes, especially if:

  • You've owned the property for decades
  • It's an investment or rental home
  • You've made major renovations or claimed depreciation
  • You inherited the property and aren't sure of the step-up in basis

A CPA or real estate-savvy tax advisor can work with you to minimize liability and ensure you're filing accurately.

Get Your Free Cash Offer Now!

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Yevgeny Vaynberg - Owner - We Buy Houses in Minneapolis MN

Plan Ahead and Sell Smart

With the right strategy, and the right buyer, you can sell your home, access your equity, and stay ahead of tax season.

Contact MSP Offer by filling out our form to request a fair all-cash offer today. Whether you're selling a primary home or a long-held investment, we'll make the process fast, simple, and stress-free so you can focus on your financial standing.