A Game Changer for Homeowners Sitting on Equity

Will Eliminating Capital Gains on Home Sales Unlock the Housing Market?

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The “No Tax on Home Sales Act,” recently backed by President Trump and introduced in Congress by Rep. Marjorie Taylor Greene, has the real estate world on alert — and for good reason. If passed, it could reshape the housing landscape, particularly in high-cost states like California, New York, and Hawaii.

Currently, homeowners who sell their primary residence can exclude up to $250,000 in gains if filing as a single individual or up to $500,000 if married. While these thresholds once covered most sales, home values in many areas have far outpaced them — leaving some longtime owners facing tens, if not hundreds, of thousands in tax liability when they try to sell.

In San Francisco, for instance, a home purchased for $300,000 in 2000 may now be worth $1 million. That’s a $700,000 gain — and under today’s rules, at least $200,000 of that could be subject to capital gains tax. For older homeowners looking to downsize, relocate, or simply cash out their equity, this tax burden can be a serious barrier to making a move.

It’s not just about taxes. It’s about inventory. The real estate industry has long argued that outdated capital gains exclusions are keeping high-equity homeowners “stuck” in homes they no longer want or need. In tight markets like California, where demand outpaces supply, freeing up this housing stock could inject much-needed inventory. But the implications are broader: unlocking these homes could also increase mobility, reduce reliance on home equity loans, and help retirees transition more easily.

Yet not everyone agrees on the ripple effects.

Critics warn that such a change could exacerbate affordability issues by flooding the market with affluent buyers competing for smaller, lower-cost homes — the same homes sought by first-time buyers. This unintended consequence could put more pressure on young families and lower-income earners, especially in urban and suburban markets already struggling with affordability.

According to Cotality, nearly 30% of California home sales in recent years exceeded the $500,000 gains threshold, compared to less than 5% in 18 other states. The National Association of Realtors estimates about 10% of homeowners across the U.S. are affected — a number that’s rising in step with home values.

The bigger question may be: is it time to modernize the tax code? The $500,000 capital gains exclusion for married couples hasn’t changed since 1997. If it had been indexed to inflation, it would be over $1.13 million today. For many in today’s market, you don’t need to be “rich” to own a million-dollar home — especially in the Northeast and on the Pacific Coast.

Whether the exemption is eliminated or simply raised, change seems inevitable. And with it, we could witness a dramatic shift: older homeowners finally listing long-held properties, empty nesters downsizing without tax fears, and more inventory hitting a market that desperately needs it.

If the bill gains traction, California and similar states could experience a wave of listings from longtime homeowners who’ve been waiting for the right moment to move. For professionals and policymakers alike, understanding these trends will be crucial in preparing for what could be a major reshuffling of the housing market.

If you have questions about how your home equity or future plans may be impacted by this proposal, or if you're considering downsizing or selling, now is the time to stay informed. Let’s connect and discuss what this could mean for you.