For many homeowners, the decision to sell is not just about price, timing, or where they would move next. Taxes can matter too, especially for owners who bought years ago and now have a large amount of built-up equity.
That is why a recent round of discussion in Washington is worth watching. Officials and lawmakers are floating ideas that could expand the federal tax break available when someone sells a primary residence. Nothing has changed yet, but the conversation matters because it touches one of the quiet reasons some long-time homeowners hesitate to list their homes.
What the current rule allows
Under current federal law, many homeowners can exclude part of their gain when they sell a primary residence. In general, qualifying single filers may exclude up to $250,000 of gain, while qualifying married couples filing jointly may exclude up to $500,000.
The rules are not automatic for every sale. Homeowners usually need to satisfy ownership and use requirements, including the familiar standard of owning and living in the home for at least two of the five years before the sale. Other details can matter too, including prior use of the property, improvements, cost basis, filing status, and whether the seller used the exclusion on another home recently.
For many sellers, the current exclusion is enough. But in markets where homeowners have owned for a long time and values have risen sharply, the taxable gain can exceed those limits.
What is being discussed
One proposal, known as the More Homes on the Market Act, would double the federal exclusion to $500,000 for single filers and $1 million for married couples filing jointly. It would also index those amounts to inflation going forward.
Separately, CNBC reported that Trump administration officials have floated the idea of larger capital gains exemptions for homeowners selling a primary residence. CNBC also noted that experts view any quick change as unlikely and that the benefits may skew toward wealthier homeowners.
That distinction matters. These are proposals and discussions, not current law. Sellers should not assume a new tax break is available, and they should not make a major timing decision based only on political headlines.
“This is a positive conversation for homeowners,” said Ty Williams, founder of RJ Williams & Co. “If this kind of relief becomes law, it will definitely help folks who have been on the fence about selling feel more confident about putting their home on the market. For a lot of long-time owners, the tax question is one more thing that can make the decision feel harder than it needs to be.”
Why this could matter for the housing market
When a homeowner has a large unrealized gain, selling can create a tax question that makes the move feel more expensive. That can be especially true for long-time owners thinking about downsizing, moving closer to family, relocating for lifestyle reasons, or shifting into a lower-maintenance home.
The Congressional Research Service has written about how capital gains taxes on owner-occupied housing can create a lock-in effect. In plain English, some homeowners may stay put because selling feels costly, complicated, or uncertain.
That does not mean taxes are the only reason inventory is tight. Mortgage rates, replacement-home costs, insurance, maintenance, lifestyle preferences, and family needs all play a role. But tax friction can be one more reason a good home never reaches the market.
What homeowners should do now
If you are thinking about selling and have owned your home for many years, the right move is to understand your numbers before you make a decision.
Start with a rough estimate of your potential gain. That usually means comparing your likely sale price with your adjusted basis, which may include your purchase price and certain qualifying improvements. Then look at whether you may qualify for the primary-residence exclusion.
From there, speak with a CPA or tax professional before making a timing decision. A real estate advisor can help you understand market value, likely net proceeds, timing, and buyer demand. A tax professional should guide the tax side.
The bottom line
A larger home-sale tax exclusion could make selling easier for some long-time homeowners, especially those with significant appreciation. It might also help bring some additional inventory to the market if the change ever becomes law.
For now, though, the rule has not changed. The best strategy is to plan with the law as it exists today, stay aware of proposals that could affect your options, and make decisions based on your actual equity, goals, and timeline.
If you are wondering whether selling makes sense this year, RJ Williams & Co. can help you evaluate your home's current market position and walk through the real estate side of the decision before you meet with your tax advisor.
Sources
- CNBC: Trump officials float cut to capital gains tax on home sales
- Congressional Research Service: The Exclusion of Capital Gains for Owner-Occupied Housing
- More Homes on the Market Act proposal materials shared with RJ Williams & Co.
This article is for general information only and is not tax, legal, or financial advice. Please consult a CPA, attorney, or qualified tax advisor about your specific situation.