Could Removing Capital Gains Taxes on Home Sales Revive the Housing Market?

As we review housing market activity over the past six months and into the early weeks of Q3, signs point to ongoing challenges: limited housing supply, reluctant sellers, and high mortgage rates continue to slow momentum.

Now, a new proposal is generating conversation across the real estate and financial communities—the potential removal of capital gains taxes on the sale of primary residences.

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What’s Being Proposed?

A policy is under discussion that would eliminate capital gains taxes when selling a primary home, regardless of the profit amount. This would be a shift from current rules, which allow homeowners to exclude up to:

• $250,000 in gains if filing single

• $500,000 in gains if married filing jointly

These limits were set in 1997 and have not changed, despite rising home values in many markets.

Removing this cap could encourage more homeowners—especially long-time owners with significant equity—to sell, potentially increasing inventory in a tight market.

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What’s the Goal?

The idea behind this proposal is to stimulate the housing market by:

• Encouraging more home listings

• Making it easier for individuals to downsize, relocate, or upgrade

• Reducing the financial hesitation that comes with selling appreciated properties

It’s seen as one of several possible ways to improve housing market movement during a time when many homeowners are “locked in” by lower mortgage rates and concerned about tax implications on home sale profits.

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Who Would Be Affected?

While only about 15% of homeowners currently exceed the existing capital gains exclusion, that percentage is expected to grow—particularly in high-appreciation areas.

This proposal would mostly impact:

• Long-term homeowners who have seen significant gains

• Those in regions with steep home price growth over the last decade

• Potential move-up or downsizing buyers delaying action due to tax concerns

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Considerations

Supporters believe this could lead to more listings, giving buyers more options in a low-inventory market.

However, economists and policy analysts also note potential trade-offs, including:

• The possibility of a higher federal deficit unless the change is offset

• Questions about how much it would actually improve affordability for first-time buyers

• Concerns about whether it would impact wealthier sellers more than others

At this stage, the proposal is being discussed and would need formal legislative action to move forward.

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Why It Matters

Whether or not this policy becomes law, it reflects ongoing efforts to explore ways to ease housing supply issues and improve market mobility. For those considering selling or buying in the next year, it’s a development worth monitoring closely.

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Key Takeaways

• A proposal is under consideration to remove capital gains taxes on primary home sales.

• The goal is to increase housing inventory by reducing tax barriers for homeowners.

• While only a minority of sellers currently pay capital gains on sales, the number is rising.

• The impact would vary by region, homeowner equity, and individual financial situations.

• It remains a proposal and would require legislative approval before becoming law.

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Have questions about how this could affect your situation?
Let’s connect. Staying informed on potential housing trends can help you make smarter decisions—whether you're buying, selling, or just planning ahead.

Source: HousingWire

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.