The Strategy
The key question was whether to sell the Washington home in 2026 or 2027, and whether residency state would affect the outcome.
Under Section 121, a married couple can exclude up to $500,000 of capital gain from the sale of a primary residence if they lived in it for at least two of the five years before the sale. The clock runs out in October 2027 for Roelof and Barb which means they need to list in spring 2027 to clear the deadline comfortably.
The larger issue was state tax. As Massachusetts residents, the taxable gain after the exclusion would push their income well past $1 million, triggering the Massachusetts millionaire’s tax which is an additional 4% surtax on income over $1,000,000. Massachusetts does follow the federal $500,000 exclusion, but the remaining $500,000 gain still stacks on top of their W-2 income.
Selling the home as a Massachusetts resident in 2026 would cost approximately $45,000 in Massachusetts tax on that gain alone. Selling in 2027 from a no-income-tax state like New Hampshire reduces that bill to roughly $32,000, a savings of about $13,000 on the home transaction. But the bigger win is the annual Massachusetts tax on Barb’s salary (approximately $30,000 to $35,000 per year) that disappears entirely with a move. State income tax arbitrage.
