Earlier this month, we reported on the No Tax on Home Sales Act, a bill that, if enacted, would scrap capital gains tax on primary residences. It was introduced on July 10 by Rep. Marjorie Taylor Greene (R-GA). And it received a boost on Tuesday from President Donald Trump.
When Greene filed the bill, we were unsure how much support it would find. Republican legislators were already exhausted from passing several tax-cutting measures in the One Big Beautiful Bill Act.
There was also a political issue. Those most likely to pay capital gains tax on principal home sales often live in blue states, where property prices tend to be higher than in red ones. How willing would Republican majorities on Capitol Hill be to pass a bill that mostly benefits blue states?
Presidential Support
34% of Homeowners Would Be Subject to the Tax if They Sold
Undoubtedly, rising home prices have brought many more homeowners within the scope of capital gains tax (CGT). In 2023, around 8% of all homes showed capital gains of over $500,000, the home sale CGT threshold for a married couple filing jointly, according to Cotality. As prices have risen since then, the current percentage will likely be higher.
A recent study by the National Association of Realtor®(NAR) found that 34% of homeowners (29 million Americans) had enough equity that they would be liable for CGT were they to sell now.
However, the NAR's threshold was $250,000, which is the exemption cap for someone filing singly. Many sellers would be married couples filing jointly or recent widows or widowers who are entitled to the $500,000 exemption. Around 10% of homeowners (8 million) have equity in excess of $500,000, said the NAR's study.
Of course, homeowners only pay CGT on the profit (capital gain) they have made while owning the property. The original purchase price is not counted, meaning many homes sell for more than $500,000 without incurring CGT.
A Growing Problem
Whether or not it's a good idea to scrap capital gains tax on principal home sales, it might soon be time to raise the exemption thresholds. "By 2035, nearly 70% (59M) of homeowners could be over $250K in equity and 38% over the $500K cap," says the NAR.
However, Forbes reports, "Proposed updates to capital gains taxes on home sales have come in recent years, as some lawmakers argued the policy has failed to adjust to inflation and the increasing cost of living. A bipartisan effort to double the exclusion to $500,000 for single filers and $1 million for couples and index the amounts to account for future inflation was introduced in October 2022, though the legislation did not move forward in the House."
It's Not Just About Tax Relief for Homeowners
One purpose of the bill, says Rep. Greene, is to "fix the housing shortage," according to a press release.
Eliminating the tax could remove a penalty for selling, opening up housing inventory for younger buyers. Homeowners age 65 and older face an average tax bill of $41,232 if they sold. For some long-time homeowners in high-appreciation areas, taxes could be north of $100,000 to sell.
Taxes could be enough to convince many homeowners to stay put and pull out equity rather than sell and downsize. That could be gumming up the real estate market, keeping more homes off the market and unavailable to new buyers.
The bill likely wouldn't fix the housing shortage. But, according to Rep. Greene and supporters of the bill, it could help.
