Homeowners Could See Doubled Capital Gains Tax Break

Legislation proposed in both the U.S. House and Senate seeks to double the capital gains tax exclusion for individuals selling their primary residences, a move intended to increase housing inventory and address affordability concerns. The "More Homes on the Market Act," with nearly identical versions in both chambers, proposes raising the exclusion limit from $250,000 to $500,000 for single filers and from $500,000 to $1 million for married couples filing jointly. This tax provision, which has remained unchanged since 1997, has not kept pace with the significant appreciation in home values over the past three decades, with home prices roughly tripling during that period. The proposed increase aims to mitigate the tax penalty that currently discourages long-time homeowners from selling, thereby potentially freeing up more homes for sale. According to a 2025 analysis by the National Association of Realtors, approximately one-third of homeowners currently possess equity exceeding the existing $250,000 exclusion for single filers, a figure projected to rise to 56% by 2030. The bills differ slightly in their mechanisms for adjusting the exclusion for inflation. The bipartisan support for these bills has grown, with about one-third of Congress co-sponsoring both the House and Senate versions in the past week. Housing affordability has emerged as a critical issue in Washington, D.C. this year, prompting legislative action. Earlier in the year, lawmakers passed a significant housing bill in June. The "More Homes on the Market Act" specifically targets the disincentive to sell caused by capital gains taxes, which can be substantial for homeowners who have benefited from decades of property value growth. By making it more financially attractive to sell, proponents hope to alleviate some of the pressure on the housing market and provide more options for prospective buyers. The current tax code's capital gains exclusion for primary residences was established at a time when home prices were considerably lower, and the tripling of home values since 1997 has rendered the existing limits less effective in their original purpose. The legislation's bipartisan traction suggests a growing consensus on the need to address housing supply issues through tax policy adjustments. The National Association of Realtors' analysis underscores the increasing number of homeowners who would benefit from an increased exclusion, highlighting the potential impact of the proposed legislation on market dynamics. The differing approaches to inflation adjustment in the House and Senate bills represent a minor point of divergence, with the core objective of doubling the exclusion remaining consistent across both legislative efforts. The renewed focus on housing affordability, coupled with the increasing equity held by homeowners, positions the "More Homes on the Market Act" as a potentially impactful piece of legislation for the U.S. housing market.