Earlier today, several members of Congress, including Congressional Real Estate Caucus Co-Chair Mark Alford (R-Mo.), sent a letterpdf to Scott Bessent, secretary of the U.S. Department of the Treasury, urging the department to use existing executive authority to index capital gains calculations to inflation.
“We write to urge you to utilize existing executive authority to remove the inflation tax on savings and investment by indexing the Department of the Treasury’s calculation of capital gains tax liability to inflation,” the lawmakers wrote in the letter.
The National Association of REALTORS® has long been advocating for congressional action on the issue and been supportive of the bipartisan More Homes on the Market Act, which would update the capital gains exclusion for the sale of a principal residence by adjusting it for inflation and indexing it going forward.
Additionally, several trade associations and non-profit organizations sent a letter to Speaker of the House Mike Johnson and Senate Majority Leader John Thune this week, urging both chambers to consider the More Homes on the Market Act.
Under current law, homeowners can exclude up to $250,000 in capital gains from the sale of a primary residence, or $500,000 for married couples filing jointly, if they meet ownership and residency requirements. Those limits were set in 1997 and have never been adjusted for inflation, despite significant increases in home values, wages and the overall cost of living over nearly three decades.
Homeowners Depend on Equity for Retirement
“NAR’s research shows nearly 29 million homeowners [34% of current homeowners] already face potential capital gains taxes if they sell, and that number is expected to climb sharply over the next decade,” says Shannon McGahn, NAR executive vice president and chief advocacy officer.
By 2030, the figure could rise to 56% and by 2035, NAR estimatespdf that nearly 70% of homeowners could exceed the $250,000 cap. That includes many middle-class Americans who’ve owned and maintained homes over a long period of time and who are depending on the equity they’ve earned to be available in their retirement.
As a result, more middle-class homeowners are being pushed above the threshold when they sell their homes, creating an unintended tax burden. Housing advocates warn that this dynamic contributes to a “lock-in” effect, discouraging homeowners from selling and moving because doing so could trigger a large tax bill. That hesitation can further constrain housing inventory at a time when many communities are already facing a shortage of homes for sale.
NAR’s interactive map details how all 50 states could be impacted if the capital gains tax is not addressed.
“Building equity shouldn’t come with a penalty; it should come with opportunity,” McGahn says. “Homeownership remains the primary way middle-class Americans build wealth, with homeowners having nearly 40 times the net worth of renters. Congress intended to incentivize homeownership, not hit middle-class families with what increasingly amounts to a home equity tax. NAR welcomes any serious proposal that addresses the outdated capital gains thresholds hurting American homeowners.”
