If you've owned a condo in Lakeshore East for more than a few years, you've probably watched your equity grow. Prices here have outpaced most of Chicago's condo market — and with roughly two months of supply right now, that trend isn't slowing down.
So the question a lot of owners are asking: if I sell, what happens at tax time?
The answer, for most primary residence sellers, is better than you think.
The Number That Matters: $250,000 (or $500,000)
The IRS lets you exclude up to $250,000 of profit from the sale of your primary residence if you're single, or $500,000 if you're married filing jointly. That profit doesn't get taxed. At all.
The rule is straightforward: you need to have owned the home and lived in it as your primary residence for at least two of the five years before the sale.
For most Lakeshore East sellers — people who bought a condo, lived in it, and are now considering a move — the entire gain falls inside that exclusion. You sell. You keep the profit. You owe nothing on it.
Those Numbers Haven't Changed Since 1997
The $250,000 and $500,000 thresholds were set by the Taxpayer Relief Act of 1997. They have never been adjusted. They are not indexed for inflation.
When the law passed, the national median home price was around $129,000. Today it's over $419,000. The exclusion that once covered virtually every homeowner in the country now leaves roughly 15% of owner-occupied households exposed to capital gains taxes on their sales, according to the National Association of Realtors.
In a neighborhood like Lakeshore East — where values have appreciated significantly and long-term owners have built substantial equity — that gap between frozen thresholds and rising prices matters. The exclusion is still generous enough to cover most sellers here today. But every year of additional appreciation narrows the cushion. If you're sitting on a large gain and planning to sell eventually, the math gets less favorable the longer you wait.
What Counts as "Profit"
The IRS doesn't tax your sale price. It taxes your capital gain, which is a smaller number than most people expect:
Sale Price − Selling Costs − Adjusted Cost Basis = Taxable Gain
Your cost basis starts with what you paid for the home, plus your original buying costs. From there, you can increase it by any capital improvements you've made — a kitchen renovation, new HVAC, bathroom remodel, new windows. A higher basis means a lower calculated gain.
Then you subtract your selling costs: agent commissions, title insurance, escrow fees, legal fees, transfer taxes, staging. All of it comes off the top before the IRS looks at your number.
By the time you run the math, even sellers who've seen significant appreciation often find their taxable gain is well below the exclusion threshold.
What Actually Happens at Closing
The process is simpler than people expect. The title company handles the math at closing and deducts everything from the buyer's payment before you receive your check:
Your remaining mortgage balance gets paid off. Any home equity loans or HELOCs are settled. Pro-rated property taxes and HOA fees for your time in the home are handled. Selling costs are deducted. What's left is your equity — your actual take-home.
None of that is a tax event. The only tax question is whether your profit exceeds the exclusion, and for most primary residence sellers in this price range, it doesn't.
Why This Matters Right Now
Lakeshore East is in a seller's market. Two months of supply. 49 closed sales in the last 90 days. Buyers are competing for a limited number of units in a neighborhood that can't add inventory — the community is essentially built out.
If you've been thinking about selling but worrying about the tax hit, run the numbers. Between the $250,000/$500,000 exclusion, your deductible selling costs, and your adjusted basis, the federal tax impact for most sellers here is zero.
The appreciation you've built is real. The exclusion is generous. And the market conditions right now are as favorable as they've been in over a decade.
A Few Things to Keep in Mind
If you sold your home at a loss, that loss is not tax-deductible on a personal residence. It's treated as personal-use property by the IRS.
If you have a home equity loan, the payoff at closing is automatic — but the interest is only deductible if the loan was used to buy, build, or substantially improve your home.
If you used the property as a rental or didn't meet the two-out-of-five-year residency requirement, different rules apply. Talk to your CPA.
This post is an overview, not tax advice. For the full details, the IRS publishes a comprehensive guide: Selling Your Home — IRS Topic 701. And your accountant can run the exact numbers for your situation.
Thinking about selling? I've sold over 1,000 condos in Chicago and I specialize in Lakeshore East and the New Eastside. If you want to know what your unit is worth in today's market — and what your net proceeds would look like after closing costs and taxes — reach out. I'll run the numbers with you.
Ginger Menne · Baird & Warner · [email protected]
