Eliminating Capital Gains on Home Sales: A Boon for Older Homeowners in High-Cost States

President Trump has suggested eliminating capital gains taxes on home sales to boost the housing market. The biggest beneficiaries will be longtime homeowners in expensive housing markets, such as San Francisco and New York. The change would primarily affect affluent homeowners who have owned their homes for a long time and have significant equity. The move would require congressional approval and could worsen the affordability problem.

President Trump has floated the idea of eliminating the federal capital gains tax on home sales, a move that could significantly impact the housing market, particularly in expensive markets like San Francisco and New York. The proposal, which would change the way real estate profits are taxed for the first time in 30 years, was mentioned during a press briefing in the Oval Office [1].

The capital gains tax on home sales has been a contentious issue, with some arguing that it disincentivizes homeowners from selling their properties. According to the National Association of Realtors (NAR), the current policy is "quietly distorting the housing market" by locking in older homeowners, thereby strangling inventory at a time when it is most needed [1].

Rep. Marjorie Taylor Greene of Georgia has introduced legislation, known as the "No Tax on Home Sales Act," which aims to eliminate the capital gains tax on home sales entirely. The White House has indicated that the administration is considering supporting this legislation [1].

The biggest beneficiaries of this change would likely be longtime homeowners in high-cost housing markets. For instance, in San Francisco, home prices have more than tripled between 2000 and 2025, with a median price of about $1 million today. A homeowner who purchased their property in 2000 for $300,000 might face a significant tax bill if they sell now, potentially in the tens of thousands of dollars [2].

Critics argue that eliminating the tax would primarily benefit wealthy Americans who can afford to pay tax on gains from home sales that exceed the current limits. Joel Berner, a senior economist at Realtor.com, noted that while the move could release inventory onto the housing market, it could also drive up home values and exacerbate the affordability problem [1].

Any changes to the capital gains limit would require congressional approval. The current caps have been in place since 1997 and have not kept up with inflation. If adjusted for inflation, the limits would be over double their current levels [2].

While the proposal is still in the consideration phase, it has sparked debate among financial professionals and real estate experts. Some advocate for increasing the limits to address the issue of inflation, while others suggest eliminating the tax altogether to boost the housing market [2].

References:

[1] https://www.cbsnews.com/news/trump-capital-gains-tax-home-sales/
[2] https://finance.yahoo.com/news/eliminating-capital-gains-on-home-sales-would-be-a-boon-for-older-homeowners-in-high-cost-states-090052929.html