Unlock Your Home Equity: Why Ending Capital Gains on Home Sales Would Be a Game Changer for Retirees
Many retirees who would like to sell their homes and downsize can't because of the tax hit. Ending capital gains on home sales would change all that.
The lodestar of the American Dream is homeownership. But the current housing market presents two opposite challenges. For new buyers, low inventory and high mortgage rates have made it harder to get on the property ladder. For older homeowners, the problem is selling. Many who might like to downsize or move are locked into their current homes because they would face a large capital gains tax on the significant increase in their home's value.
It's a unique problem facing many retirees and pre-retirees, due to the impressive equity they have built up in their homes.
In 2025, 1 in 3 homeowners — nearly 29 million households — have built up more home equity than the federal capital gains tax exclusion for single filers. By 2030, that number is expected to grow to 56% of homeowners, according to research from the National Association of Realtors (NAR).
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
President Trump voiced his support for eliminating the capital gains taxes on home sales during a press conference on Tuesday. “We’re thinking about that,” Trump told reporters.
The current exclusion, $250,000 for single filers and $500,000 for those filing jointly, was put in place in 1997 and was never increased or indexed for inflation. Before Congress wrote the rule change, sellers could defer paying capital gains taxes on the sale of their homes if they purchased another home for the same or greater value. However, they had to keep decades of receipts and were hit with taxes if they wanted to downsize.
If the current exclusion had been indexed for inflation, the cap would now be about $660,000 for individuals and $1.32 million for couples, according to research from the University of Illinois-Chicago.
The possibilities for retirees after unlocking "locked-in" equity
Eliminating capital gains taxes on home sales, especially for older people, has several potential benefits, albeit primarily for those with significant home appreciation.
Many older homeowners have lived in their homes for decades, accumulating substantial equity due to rising property values. The current capital gains tax, even after using the existing exclusion of $250,000 for individuals and $500,000 for married couples, can be a significant financial disincentive for those homeowners to sell.
Eliminating this tax would free up that equity, allowing seniors to:
- Downsize: Move to smaller, more manageable homes without a hefty tax bill, potentially reducing their living expenses and maintenance burdens.
- Relocate closer to family or better medical care: Sell their homes and move to areas that better suit their needs as they age, without losing a large portion of their profit to taxes.
- Fund retirement or health care costs: Access the full value of their home to cover increasing living expenses, long-term care, or other medical needs in retirement.
- Improve financial security: Have more liquid assets available for unexpected expenses or to enhance their overall financial well-being.
Where the problem hits hardest
For the most part, states that have the most homeowners with equity above the current exclusions have historically had a high cost of living; they are home to some of the most expensive cities to live in the U.S, such as Hawaii, California and Massachusetts. Couples face bigger capital gains headaches than their single counterparts in New York and Washington, D.C.
State | % Homeowners w/ equity exceeding the 250k exclusion (single filers) | State | % Homeowners w/ equity exceeding the 500k exclusion (married filers) |
|---|---|---|---|
Hawaii | 79.10% | Hawaii | 46.0% |
Washington | 64.80% | California | 30.8% |
California | 62.60% | Washington D.C. | 25.40% |
Massachusetts | 62.30% | Washington | 24.70% |
Colorado | 59.50% | Massachusetts | 23.50% |
Idaho | 54.90% | New York | 18.70% |
Montana | 53.60% | Montana | 18.00% |
An opportunity for retirees and aspiring homebuyers
Eliminating capital gains on home sales could provide significant financial relief and increased flexibility for older homeowners with substantial home appreciation, potentially encouraging more housing turnover. The current effect of capital gains taxes on home sales is a disincentive that NAR calls the “stay-put penalty."
“This stagnation in housing turnover is rippling through the entire market, driving up costs and limiting opportunity — exactly the opposite of what public policy should be encouraging,” says Shannon McGahn, NAR executive vice president and chief advocacy officer. “And it grows worse each month.”
Increasing housing supply: Eliminating the tax could encourage more seniors to sell their larger, long-held homes, thereby increasing the supply of houses on the market. This could, in turn, help to ease housing shortages and potentially make homes more affordable for younger generations and first-time buyers. More homes are sorely needed.
While the inventory of homes for sale is up 28.9% year over year, it remains 12.9% below pre-pandemic levels, according to realtor.com.
Related Content
-
What to Do When You Bank Lowers Your APYWhy banks lower APYs, options you can explore when it happens and whether more rate cuts are on the horizon.
-
Forget Financial Forecasts: Focus on These 3 Goals for SuccessWe know the economy is unpredictable and markets will do what they do, no matter who predicts what. Here's how to focus on what you can control.
-
Why In-Person Financial Guidance Remains the Gold StandardFace-to-face conversations between advisers and clients provide the human touch that encourages accountability and a real connection.
-
I'm a Wealth Planner: Forget 2026 Market Forecasts and Focus on These 3 Goals for Financial Success
We know the economy is unpredictable and markets will do what they do, no matter who predicts what. Here's how to focus on what you can control.
-
I'm a Financial Adviser: Why In-Person Financial Guidance Remains the Gold Standard
Face-to-face conversations between advisers and clients provide the human touch that encourages accountability and a real connection.
-
This Is How You Can Turn Your Home Equity Into a Retirement BufferIf you're one of the many homeowners who has the bulk of your net worth tied up in your home equity, you might consider using that equity as a planning tool.
-
We Are Retired, Mortgage-Free, With $970K in Savings. My Husband Wants to Downsize to Lower Our Costs, but I Love Our House. Help!We've paid off our mortgage, have $970K in savings and $5K each month from Social Security. Kiplinger asked wealth planners for advice.
-
Feeling Too Guilty to Spend in Retirement? You Really Need to Get Over ThatAre you living below your means in retirement because you fear not having enough to leave to your kids? Here's how to get over that.
-
Strategies for Women to Maximize Social Security BenefitsWomen often are paid less than men and live longer, so it's critical that they know their Social Security options to ensure they claim what they're entitled to.
-
QUIZ: What Type Of Retirement Spender Are You?Quiz What is your retirement spending style? Find out with this quick quiz.
-
This Is How Early Retirement Losses Can Dump You Into Financial Quicksand (Plus, Tips to Stay on Solid Ground)Sequence of returns — experiencing losses early on — can quickly deplete your savings, highlighting the need for strategies that prioritize income stability.
