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Capital Gains Tax Relief on the Table

Amid a worsening housing shortage, U.S. lawmakers are proposing cuts or reforms to capital gains taxes on home sales to increase housing supply. Currently, primary home sellers can exclude up to $250,000 in profits for single filers and $500,000 for married couples filing jointly. However, an estimated 8 million households—roughly 10% of married couples—exceed that limit, according to the National Association of Realtors.

Sens. Ted Cruz, R-Texas, and Tim Scott, R-S.C., recently urged Treasury Secretary Scott Bessent to index the “basis” of homes to inflation. Doing so would reduce taxable gains by adjusting the purchase price to today’s dollars, potentially encouraging long-term homeowners with significant equity to sell their properties.

Legislative Efforts and Policy Proposals

Capital gains on home sales have drawn bipartisan attention in recent years. The “More Homes on the Market Act,” introduced in 2025, seeks to double the current exemptions—raising them to $500,000 for singles and $1 million for married couples—and index the figures for inflation annually. The Republican Study Committee’s “Reconciliation 2.0” framework goes further, proposing to eliminate capital gains tax entirely on sales to first-time buyers and rental properties sold to tenants.

Former President Donald Trump has also signaled support, noting in July that eliminating capital gains on homes could boost affordability if interest rates remain elevated.

Who Would Benefit

Rising home prices mean an increasing number of sellers are affected by capital gains taxes. In 2025, the National Association of Realtors estimated 29 million homeowners—34% of single filers—could exceed the $250,000 exemption, paying up to 20% in capital gains tax plus an additional 3.8% net investment income tax for high earners. Wealthier households with higher incomes are most impacted.

Potential Impact on Housing Market

Supporters argue that reducing or eliminating capital gains taxes could unlock more homes for sale, particularly for younger buyers struggling to enter the market. Dozens of conservative organizations, including Americans for Tax Reform and the Market Institute, say the tax burden discourages sellers, tightening supply and making it harder for families to purchase homes.

Libertarian analysts, such as Adam Michel from the Cato Institute, suggest that expanded exemptions could free up housing stock.

However, some experts remain skeptical. A February Brookings report found that most senior homeowners would not alter their selling behavior based on tax changes. “There are so many other reasons why older people don’t move from their homes,” said Howard Gleckman, a tax policy fellow at Urban-Brookings. “Taxes are rarely the main factor influencing these decisions.”

Housing Shortage Remains Pressing

The U.S. housing supply gap continues to widen, reaching an estimated 4.03 million homes in 2025, up from 3.8 million in 2024. Proponents of capital gains reform argue that even modest policy changes could nudge some sellers to list their homes, helping alleviate pressure in the market and supporting first-time buyers, though the overall effect on affordability remains uncertain.