Good Monday Morning!

 

Currently, homeowners can take advantage of a $250,000 federal tax exemption from capital gains upon the sale of their home. For a couple, this exemption is $500,000. With current home values, is this enough? The following article from the National Association of Realtors makes a strong case that this exemption is no longer sufficient—and that it may be hurting our national housing market.

 

By 2030, more than 56% of homeowners could have equity exceeding the $250,000 exclusion, and by 2035, that could rise to nearly 70%, with over 38% surpassing the $500,000 mark.

 

In states with exceptionally high-priced markets, such as California, Massachusetts and Colorado, the trend is even more pronounced. By 2035, 20 states are projected to have over 40% of homeowners possibly facing tax penalties simply for having built equity in their homes over time.

 

The “Stay-Put Penalty”

The effect is a disincentive that housing economists are calling a “stay-put penalty.” Seniors in appreciating markets—many of whom have spent decades in their homes—are delaying moves they might otherwise make. Downsizing, relocating closer to family or shifting into assisted living can become a costly and sometimes impossible proposition, thanks to looming tax bills.

 

What’s worse, their reluctance to sell means fewer homes are available for younger buyers. Entry-level and move-up inventory is squeezed, pushing prices higher and fueling a cycle of scarcity that frustrates first-time buyers and growing families alike.

 

“This stagnation in housing turnover is rippling through the entire market, driving up costs and limiting opportunity—exactly the opposite of what public policy should be encouraging,” McGahn continued. “And it grows worse each month.”

 

The More Homes on the Market Act

To address this looming crisis, NAR is supporting the More Homes on the Market Act, a bipartisan bill that would update the capital gains exclusion thresholds for the first time in nearly 30 years.

 

The legislation proposes to:

 

  • Double the exclusion to $500,000 for individuals and $1 million for married couples
  • Adjust the caps to reflect future inflation
  • Free up millions of homes by reducing the tax disincentive to sell

 

According to the bill’s sponsors, by modernizing this outdated provision, the act would restore fairness to the tax code and bring much-needed fluidity back into the housing market. Evan Liddiard, NAR director of federal taxation, discussed NAR’s support for the bill during at tax discussion at the REALTORS® Legislative Meetings: “Now, there were things that we were really pushing for [as part of tax reform that includes other pro–real estate provisions], including the More Homes on the Market Act that would double the exclusion level for capital gains, and make it so that older homeowners in their houses for a long time could be more willing to sell because they don't have to pay that big capital gains tax.”

 

Support for the legislation was a key talking point for thousands of NAR members who came to Washington to meet with their lawmakers.

 

Equity Shouldn’t Be a Trap

“Building equity shouldn’t come with a penalty—it should come with opportunity,” McGahn says. “Congress created this exemption for a reason. Homeownership is the primary way middle-class Americans build wealth, with homeowners having nearly 40 times the net worth of renters. Congress intended to incentivize homeownership and not hit the middle class with a giant home equity tax.”

 

Have an awesome week!

Stay Healthy! Stay Safe! Remain Positive! Trust In God!

 

Sincerely,

Galand