What Washington Could Do to Change That
For nearly 30 years, the capital gains exclusion on primary home sales has stayed exactly the same. Yet during that time, home values across the country have climbed to historic highs. That mismatch has created an unexpected tax hurdle for many long-time homeowners, and it has quietly contributed to the tight housing market we see today.
Under current law, homeowners can exclude up to $250,000 of gain if single, or $500,000 if married filing jointly. These limits were set back in 1997, when the median U.S. home cost about $145,000. Fast forward to today, and home prices have risen more than 260%, while the exclusion has never been adjusted for inflation or modern market realities.
For many families, that means their appreciation now exceeds the exclusion amount. What used to be a rare issue for luxury properties is increasingly affecting ordinary households. In some cases, the potential tax bill is large enough to discourage people from moving, even when they would love to downsize, relocate, or live closer to children and grandchildren.
The Lock In Effect
Economists call this the “lock-in effect.” When homeowners stay put to avoid taxes, fewer homes come onto the market. That limited supply pushes prices higher and makes it harder for first-time buyers and growing families to find the right fit.
Momentum for Change
But here is the encouraging part. There is real, bipartisan momentum building to address this issue.
Across Washington, lawmakers from both sides of the aisle have begun acknowledging that the rules written in the 1990s no longer reflect today’s housing landscape. Housing affordability has become a top national priority, and updating the capital gains exclusion is increasingly viewed as a practical, common-sense step toward unlocking inventory and easing pressure on families.
Several proposals aim to modernize the exclusion, from raising the limits, to indexing them for inflation, to potentially eliminating capital gains taxes on primary home sales altogether. While none of these ideas have passed yet, the fact that they are being actively discussed in a bipartisan way is a meaningful shift. It signals that policymakers recognize the importance of helping long-time homeowners move more freely and helping younger families access the homes they need.
What This Could Mean for Homeowners
For homeowners, potential reform could bring real relief:
• More flexibility to move without triggering an unexpected tax bill
• More freedom to right-size as life evolves
• More opportunity to relocate for family, work, or lifestyle
And for the broader market, updating the rules could help unlock inventory and support a healthier, more balanced housing environment, something that benefits both current and future homeowners.
Looking Ahead
The housing market has transformed dramatically since 1997. Whether tax policy catches up remains to be seen, but the conversation is gaining real momentum. And for homeowners across the country, that is a hopeful sign of brighter days ahead.
Because tax rules can be complex, it is important to review your situation with your financial advisor and CPA. Tax laws can change quickly, and we are here to help you stay prepared and make confident decisions when planning a home sale.
Elevation Wealth Partners, wealth advisors, CPAs, and tax advisors keep our clients informed on such matters. If you are interested in what it’s like to work with us, feel free to call, email, or schedule an appointment.
Contact: info@elevationwp.com
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This information is provided for general educational purposes only and should not be considered legal, tax, or financial advice. Individuals should consult appropriate professionals regarding their specific circumstances.