Updated October 7, 2026. Quick answer: Generally no, if you qualify for the federal exclusion. The 2025 Form M1 starts from “Federal adjusted gross income (from line 11 of federal Form 1040”), and a gain excluded under section 121 is not in it. Gain above the exclusion is taxed at graduated rates; the Department’s 2026 tables run from 5.35% to 9.85%.
Minnesota tax on home sale profit at a glance
| Item | What the documents say |
|---|---|
| Profit on your main home | Starts from federal adjusted gross income, which excludes a gain excluded under section 121 (no document read mentions section 121) |
| Rate on gain above the exclusion | Graduated: 5.35%, 6.80%, 7.85% and 9.85% (2026 tables) |
| Collected at the sale | No withholding found in the documents read. The deed carries a state deed tax of 0.33% of the net consideration |
| Source | Minnesota Department of Revenue |
What the Minnesota documents say
The 2025 Form M1 begins with “Federal adjusted gross income (from line 11 of federal Form 1040”). Under the federal statute, “Gross income shall not include gain from the sale or exchange” of a principal residence that meets the ownership and use tests, so an excluded gain never enters federal adjusted gross income. That is reasoning from two documents. The form does not mention section 121 or a home sale.
On the rates, the Department’s page says “These tables outline Minnesota’s tax rates and brackets for tax year 2026”. For married couples filing jointly the brackets are 5.35% up to $48,700, 6.80% to $193,480, 7.85% to $337,930 and 9.85% above that.
What the federal exclusion requires
Most state answers start here. The statute says “Gross income shall not include gain from the sale or exchange” of property that, during the five years before the sale, you owned and used as your principal residence for periods adding up to two years or more. The limit is “shall not exceed $250,000”, or $500,000 for a husband and wife who make a joint return and meet the statute’s conditions. See CMG’s home sale taxes page and exclusion calculator.
A worked example at a $400,000 gain
An illustration, not a return: a married couple in Minnesota sells their main home with a gain of $400,000 and meets the federal ownership and use tests. The gain is below the $500,000 joint exclusion, so it is not in federal adjusted gross income and, on the documents read, $0 is taxed by Minnesota. As a second illustration, computed below, suppose the gain were $600,000. The amount above the exclusion would then be $100,000, which is taxed at the graduated rates; this page computes no tax because the bracket depends on the rest of the return.
What is collected at the sale
The documents read show no Minnesota withholding or prepayment on a resident’s home sale; the Department’s withholding pages cover partnerships and S corporations. That is a gap in what was read, not a statement that none exists; ask the closing agent.
Minnesota does tax the deed. Minn. Stat. 287.21 says “A tax is imposed on each deed or instrument by which any real property in this state is granted, assigned, transferred, or otherwise conveyed”, and when the consideration exceeds $3,000 the tax is “.0033 of the net consideration”. The section read does not say who pays it.
What changes in 2026
The documents read for Minnesota announce no change for 2026 that is specific to the tax on a home sale. The forms and instructions read are for tax year 2025 or the newest page archived; check the state agency for 2026 forms when they are published.
What the documents do not say
- The form does not mention section 121, so conformity is reasoned from the federal starting point. The M1 instructions could not be archived. The rate tables are for 2026 and the form for 2025.
Common mistakes
- Assuming a separate Minnesota home-sale exclusion; the documents read start from federal adjusted gross income.
- Applying the top rate to the whole gain; the rate depends on total income and filing status.
- Assuming the answer for one state applies to another, or that the state answer changes the federal tax on the sale.
Related: home sale taxes, state tax on home sale profit, how Minnesota taxes capital gains, Minnesota retirement taxes, and home sale exclusion calculator.
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Answer againSources
- 2025 Form M1, Individual Income Tax: https://www.revenue.state.mn.us/sites/default/files/2026-03/m1-25.pdf
- Income Tax Rates and Brackets: https://www.revenue.state.mn.us/minnesota-income-tax-rates-and-brackets
- 26 U.S.C. 121, Exclusion of gain from sale of principal residence (U.S. Code, GovInfo): https://www.govinfo.gov/content/pkg/USCODE-2023-title26/html/USCODE-2023-title26-subtitleA-chap1-subchapB-partIII-sec121.htm
- Minn. Stat. 287.21, Imposition of tax; determination of tax (Office of the Revisor of Statutes; read October 8, 2026): https://www.revisor.mn.gov/statutes/cite/287.21
Sources: the primary documents linked above, read on October 7, 2026. General information, not tax advice. Your own facts decide the outcome, and a tax professional or the state agency itself is the right place to confirm anything consequential.