President Trump has recently suggested removing the capital gains tax on home sales to help revive the slow housing market. This change would mainly benefit older homeowners who live in states with high home prices.
Currently, the government allows homeowners to exclude $250,000 in capital gains if they are single, or $500,000 if they are married, from taxes when selling a home. Real estate groups have long wanted to raise or eliminate these limits. They say large tax bills stop some homeowners from moving or downsizing even when they want to.
For example, a homeowner in San Francisco who bought a house for $300,000 in 2000 could face taxes on $700,000 in gains if they sell today, given that the median price there is about $1 million. Depending on their tax status, they might owe between $200,000 and $450,000 in capital gains taxes. This shows how older owners in costly markets face big tax bills.
Homes for sale are scarce in many areas, pushing prices to new highs. Some experts say removing capital gains taxes might help increase the number of homes available. Others worry it could make it harder for first-time buyers to afford a home. Older, wealthier owners might enter the market more often if taxes are cut, competing with new buyers for smaller, less expensive houses.
Any change to these tax limits needs approval from Congress. Trump’s remarks came after a reporter asked him about the issue. Around 10% of American homeowners have enough equity to pay capital gains taxes above the $500,000 limit. In expensive states, this share is much higher.
Alex Caswell, an advisor in San Francisco, mostly works with clients who face these tax decisions, especially in California and New York. He said many homeowners who bought after the 2008 lows could benefit if the limits change. Still, he noted this might create tighter competition for affordable homes.
Data shows the number of sales triggering capital gains above $500,000 has grown. In 2023, nearly 8% of home sales did, compared to about 3% a few years ago. In California, almost 30% of sales recently passed this threshold, along with 24% in Hawaii and 22% in Washington, D.C.
John Power, a financial planner in Massachusetts, said the current $500,000 exclusion for couples is too low. He views the limit as a real problem for many homeowners facing substantial tax bills.
The proposal to cut or eliminate capital gains taxes on home sales could reshape the housing market, especially for homeowners in costly states. The decision now rests with Congress and how lawmakers balance the benefits for sellers with concerns about housing affordability.
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