President suggests a move that could have big implications for the housing and mortgage markets
The US government is considering eliminating the capital gains tax on home sales, a move that could significantly alter the real estate market. President Donald Trump indicated on Tuesday that his administration is exploring the measure, though he suggested that such a step would be less necessary if the Federal Reserve were to lower interest rates.
“If the Fed would lower the rates, we wouldn’t even have to do that,” Trump told reporters in the Oval Office. “But we are thinking about no tax on capital gains on houses.”
Currently, profits from the sale of homes, like other assets, are subject to capital gains taxes. However, the existing tax law provides substantial exemptions: single filers can exclude up to $250,000 in capital gains from the sale of their primary residence, while married couples filing jointly can exclude up to $500,000. These exclusion amounts have remained unchanged since 1997.
A proposed legislative shift
The president’s remarks have drawn attention to a bill introduced by Republican representative Marjorie Taylor Greene, titled the “No Tax on Home Sales Act”. This legislation seeks to entirely eliminate the federal capital gains tax on the sale of primary residences.
Greene, who has garnered early support from Trump for her proposal, took to X to express her appreciation, stating, “Thank you, President Trump, for supporting my No Tax on Home Sales Act!” She added, “You worked for it. You should keep it. Let’s get this bill passed!”
According to Forbes, proponents of the bill argue that the existing tax is an “outdated, unfair burden,” especially in a housing market where values have surged, potentially trapping older homeowners who might otherwise sell. A recent study by the National Association of Realtors (NAR) revealed that 34% of homeowners, or 29 million Americans, possess enough equity to exceed the $250,000 cap, and 10% (8 million) may already exceed the $500,000 limit.
The NAR refers to this as a “stay-put penalty,” suggesting it stifles inventory, a report from CBS News noted.
Economic implications and concerns
The median sales price for existing homes in May stood at $422,800, a nearly 239% increase from $124,800 in 1997. This appreciation means more homeowners are encountering the capital gains tax. Data from property firm CoreLogic indicates that about 8% of US home sales in 2023 resulted in a profit exceeding $500,000, requiring sellers to pay the capital gains tax. This figure is approximately 150% higher than the average between 2017 and 2019.
Despite the potential benefits for some homeowners, critics of eliminating the tax argue that such a measure would primarily benefit wealthier Americans and could further inflate housing prices. Joel Berner, a senior economist at Realtor.com, suggested in an interview with CBS News that while it could release inventory, it “wouldn't really move the needle for a regular family, unless you have a home that’s appreciated a lot.”
There are also concerns about the impact on federal revenue and the potential for increased activity from investors and speculators. In the first three months of this year, investors accounted for a record 27% of all home sales, according to BatchData.
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