Capital Gains Exemption on Home Sales Benefits Retirees, Making Home Equity Access Easier
The proposal to eliminate federal capital gains tax on home sales for primary residences is gaining traction in Congress, with President Trump and some members, such as Rep. Marjorie Taylor Greene, advocating for the change. This move, if enacted, would remove the existing $250,000 (single) / $500,000 (joint) exclusion limits that have not been updated since 1997.
For older homeowners, particularly seniors, the potential impact could be significant. Many have seen dramatic home appreciation over the years, often facing a large capital gains tax bill if they sell. Eliminating the tax would provide them with substantial financial relief, enabling them to sell without such a tax penalty.
One of the key issues currently is the "stay-put penalty," where many seniors postpone selling their homes to avoid triggering capital gains taxes. Removing the tax could encourage them to downsize or relocate, unlocking home equity that is otherwise tied up.
Increased housing supply could also be a result of more seniors selling, potentially easing the housing shortage and making homes more accessible for younger buyers and first-time homeowners.
It's important to note that this change would only apply to primary residences, not investment properties or second homes, and would not be retroactive—meaning it would apply only to sales after the law’s enactment.
Research from the University of Illinois-Chicago suggests that if the current federal capital gains tax exclusion had been indexed for inflation, the cap would now be about $660,000 for individuals and $1.32 million for couples. With this in mind, states with the most homeowners with equity above the current exclusions, such as Hawaii, Washington, California, and Massachusetts, could see a significant impact.
According to the National Association of Realtors (NAR), by 2030, 56% of homeowners are expected to have built up more home equity than the current federal capital gains tax exclusion for single filers. This underscores the increasing significance of this issue for many households, with older generations disproportionately affected.
In conclusion, while legislation is still pending and not guaranteed to pass, eliminating capital gains tax on home sales for primary residences could encourage older homeowners to sell more freely, increase housing market liquidity, and provide major economic relief to retirees with long-held, highly appreciated homes. This could also have wider effects on housing affordability and market dynamics in the U.S.
- The financial relief provided by the proposed elimination of the federal capital gains tax on home sales for primary residences could motivate older homeowners, particularly seniors, to sell their homes more freely, unlocking their home equity.
- For households with older generations, the elimination of the capital gains tax on primary residences could signify a significant improvement in their personal-finance situation, enabling them to reap the benefits of selling homes without the burden of a tax penalty.
