Recently, the National Association of Realtors (NAR) has been very successful in lobbying for the exclusion of capital gains tax on home sales. This punitive tax has not been raised since 1994. Lawrence Yun, the NAR’s chief economist, noted that a lot of retirees would like to downsize. Yet, they’re prevented from doing so by the tax consequences. The capital gains tax only affects profits over $250,000 and $500,000 for individuals and couples respectively. This cost weighs disproportionately on wealthy homeowners and baby boomers who have owned their homes for 50 years.
Yun mentioned at least one major impact that accountants are advising clients not to sell their homes because of the capital gains tax. “Their accountants are saying don’t sell the home because of the tax,” he stated, underscoring how this financial burden can stifle mobility among homeowners.
It’s a matter that’s only become more urgent as home prices have skyrocketed in recent years. According to NAR data, home prices have increased 51.58% on average across the United States since the onset of COVID-19. Nationally, in June, the price of a typical home that sold reached an all-time high—$435,300. Additionally, 15% of current homeowners would incur capital gains taxes if they sold their homes in today’s market, complicating their decisions.
President Donald Trump previously suggested eliminating the capital gains tax on home sales, sparking discussions among real estate experts on its potential effects. Yet despite the optimism, certain analysts are doubtful as to whether such a change would actually improve the loss-riddled housing market. Stephen Kim remarked, “Frankly that’s not what really is going to matter for the housing market.” He emphasized the importance of restoring consumer confidence, adding, “We believe that a lot of the actions that the Trump administration has taken have created instability and uncertainty.”
Daryl Fairweather weighed in, stating, “It’s not clear to me this would help the housing market. If anything, I would like to see them reduce taxes on improvements to homes, like if you’re putting in an ADU, and that’s what increases the value of your home.” This perspective suggests that focusing on enhancing property value through improvements may be more beneficial than adjusting capital gains tax regulations.
Experts are still working to understand how the new capital gains tax on home sales will play out. They call for policies that promote market certainty and help drive existing homeowners towards their real estate aspirations.