In recent years, more people across the United States are triggering capital gains taxes when they sell their primary homes. This is happening even though the federal government offers a tax break: a capital gains home sale exclusion of up to $250,000 in gains for individuals ($500,000 for married couples filing jointly).
Why? Those exclusion limits haven’t changed since 1997, despite soaring home values in many areas.
Now, Rep. Marjorie Taylor Greene (R-Ga.) has introduced the No Tax on Home Sales Act. The goal of the bill is to eliminate capital gains taxes on home sales of primary residences.
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“Families who work hard, build equity, and sell their homes should not be punished with massive tax bills. The capital gains tax on home sales is an outdated, unfair burden — especially in today’s housing market, where values have skyrocketed. My bill fixes that.” Greene stated in a release regarding the proposal.
President Donald Trump has also weighed in.
During a press briefing, Trump told reporters he is “thinking about eliminating the tax on capital gains from houses,” when asked whether he was considering the proposal to stimulate the market.
But as you might expect, the bill is already sparking debate about who benefits and whether such a significant change could even pass Congress.
So, will there soon be “no capital gains tax on home sales”? Here’s what you need to know.
No tax on home sale profit?
Under current tax rules, eligible homeowners can exclude up to $250,000 (or $500,000 for married couples) in gains when selling a primary residence. Amounts above the exclusion limits are generally taxed at normal capital gains rates.
So, if you sell your home for a gain of less than those amounts, you can avoid paying capital gains tax on that amount.
(There are, of course, some criteria to meet and some IRS exceptions, but for many homeowners, the home sale exclusion helps them avoid capital gains taxes.)
For more information, see The Capital Gains Tax Exclusion for Homeowners.
However, as mentioned, the exclusion limits haven’t been adjusted for inflation. So, the value of the tax relief provided by the exclusion has eroded over time.
(Some estimates suggest that if the $250,000/$500,000 home sale exclusion had been indexed to national home price growth since 1997, it would be about $618,000/$1.24 million today.)
Combine that with soaring home values for some, and you end up with more homeowners unexpectedly facing capital gains tax liability when selling their properties.
Enter the GOP’s Rep. Marjorie Taylor Greene’s No Tax on Home Sales Act. If approved, the bill would:
- Eliminate Capital Gains Tax Limits: The bill proposes removing the current dollar limits on the federal capital gains tax exclusion for the sale of a primary residence.
- Focus on Primary Residences: The measure would apply only to primary homes. According to the bill, the capital gains exemption would not extend to second homes, investment properties, or house flipping transactions.
- Not Be Retroactive. If enacted, the changes would take effect for sales and exchanges occurring after the law’s passage.
‘Lock-in Effect’ and capital gains tax on the sale of a house
Part of Rep. Greene’s argument is that eliminating capital gains taxes could remove a key deterrent to selling, particularly for long-term and “senior” homeowners.
- Older adults and long-term homeowners often choose not to sell their homes because they represent a source of financial stability.
- Particularly for those who have paid off their mortgages, selling often means facing higher costs elsewhere due to today's elevated mortgage rates.
- Additionally, in many cases, their homes hold substantial equity, which they may want to preserve as an emergency resource, through reverse mortgages, or to pass on to loved ones.
The rationale behind the housing supply argument is that while high mortgage rates and home prices are often key reasons people stay in their homes, capital gains taxes can also make selling less appealing.
Some policymakers argue that removing or raising the tax exclusion limits could make moving more affordable for some homeowners and boost housing turnover. (Data indicate that the existing supply of single-family homes remains relatively tight.)
However, as reported by CNBC, others point out that eliminating capital gains taxes on home sales wouldn’t address factors like costly new mortgages and high home prices, which, as mentioned, contribute to the strong reluctance of some homeowners to sell (also known as the “lock-in effect”).
Some critics also point to potential negative impacts of the proposal, like hundreds of billions in reduced federal tax revenue, and argue that the measure would primarily help wealthier households.
Who benefits from no home sale tax?
According to research from the Yale Budget Lab, based on 2022 Federal Reserve data and estimates from the National Association of Realtors, only about 10 to 15 percent of homeowners have capital gains on their primary residences that exceed the current federal tax exclusion limits.
The report found that homeowners benefiting from the elimination of capital gains taxes on home sales are typically wealthier and older, with homes averaging $1.4 million and capital gains above the exemption at around $430,000.
Under Greene’s proposal, that relatively small, but affluent group could reportedly save approximately $100,000, assuming the top capital gains rate.
- Overall, homeowners most likely to benefit from a repeal of capital gains taxes on home sales are those who’ve seen significant growth in property value.
- According to housing market data, longtime residents in cities such as San Francisco, California; Austin, Texas; and Miami, Florida, often experience hundreds of thousands of dollars in property appreciation.
So, fully eliminating that tax could mean six-figure savings for people whose homes have risen far beyond the normal $250K/$500K exclusion limits.
Who misses out?
On the flip side, plenty of homeowners wouldn’t see much of a change.
According to IRS tax return and other market data, many people selling their homes already fall under the $250,000/$500,000 exclusion. So, they wouldn’t owe capital gains tax under current law.
Recent buyers or those in slower-growth markets might also walk away from a home sale with little or no appreciation, which could make the proposed tax change largely irrelevant.
Worth noting: renters — who now make up over a third of U.S. households — wouldn't benefit.
Additionally, homeowners in states with high capital gains tax rates, like California or New York, may still face substantial tax bills when they sell their primary residences.
Capital gains tax rate: Bottom line
President Trump’s latest float, to support a proposal to eliminate capital gains taxes on home sales, is making headlines. However, whether Congress will act on the idea remains a question mark.
For now, eligible homeowners can take advantage of the home sale exclusion. Up to $250,000 ($500,000 for married couples) in profit from selling your primary home can be excluded from federal capital gains tax if you meet the IRS rules.
With 2025 capital gains tax rates ranging from 0% to 20% based on income, the long-standing exclusion continues to help many avoid a hefty tax bill. But you never know what can happen in Washington, so stay tuned.
Related
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- Capital Gains Tax on Real Estate and Home Sales
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