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6-Year Rule for Capital Gains Tax: Does It Apply in the U.S.?

February 27, 2026Taxes5 min read

By Helium Day Tax

Confused about the 6 year rule for capital gains tax? Learn what it means abroad, the U.S. rules people mix it up with, and what to do before a sale happens.

6-Year Rule for Capital Gains Tax: Does It Apply in the U.S.?

What is the 6 year rule for capital gains tax?

This question is irrelevant. The United States federal tax code does not use a 6-year window to determine taxation. 

This concept originates from Australia's tax system. In accordance with the Australian law, a former home might retain its "main residence" exemption for up to 6 years after the owner moves out — even if the property is rented out during that time.

What US tax rules get confused with the “6-year rule”?

Is the IRS “6-year rule” about audits?

Yes. This rule outlines a time limit for the IRS to assess additional taxes.

It does not present a tax break on investments. 

The IRS normally has 3 years from the filing date to audit a return. This period extends to 6 years if a taxpayer omits a substantial amount of income.

Is there a 6-year rule for selling the primary home in the US?

No. The US relies on a 2-out-of-5-year test for home sales. In order to qualify for the exclusion — up to $250,000 of gain for single filers or $500,000 for married couples filing jointly — you should own & live in the property for at least 24 months out of the 5 years immediately preceding the sale.

Holding period has the major impact. In the case of selling an asset that was held more than 1 year, it’s generally a long-term capital gain. 1 year or less is short-term & taxed like ordinary income. The final bill also varies with:

  • The taxable income — which influences the federal capital gains rate
  • The cost basis — what you paid, plus specific adjustments
  • Whether you have capital losses to offset gains

Washington State applies its distinct tax independently of federal laws. This taxation applies to specific long-term gains allocated to the state. For the 2025 tax year, Washington enables a $278,000 standard deduction and excludes specific asset categories, like real estate.

Taxable Washington capital gains

State rate

$1 to $1,000,000

7.0%

$1,000,001 + above

9.9%

What should you do before selling an investment or business interest?

Organize the documentation. Precise recordkeeping practices allow smarter tax planning.

  • Locate the exact asset type — stock, cryptocurrency, business interest, etc.
  • Confirm the original purchase date to establish categorization: short-term / long-term
  • Calculate the cost basis using purchase documents, statements & improvement receipts and fee records
  • Checking prior tax returns for any capital loss carryforwards
  • Verifying the rules in the state, especially if it enforces its own capital gains tax

If you’re expecting major gains — or you’re not sure whether a sale is even in the tax base — reach out to Helium Day Tax & CPAs. Our professionals will evaluate the facts and coordinate the federal & state reporting processes.