President Donald Trump has suggested eliminating the federal capital gains tax on home sales, a move that could reshape the US housing market. While industry groups have welcomed the proposal, housing economists caution it could deepen existing inequalities.
The plan, first floated by Representative Marjorie Taylor Greene under the “No Tax on Home Sales Act”, has not yet been formalized, but it is already sparking debate. Supporters argue it would remove financial barriers for long-term homeowners, while critics warn it would primarily benefit wealthier sellers in high-cost markets.
What Capital Gains Tax Means for Homeowners
The capital gains tax applies when a homeowner sells a property for more than its original purchase price. According to Realtor.com Chief Economist Danielle Hale, current rules exempt the first $250,000 of gains for individuals and $500,000 for married couples who have lived in their home for at least two years. These thresholds, introduced in 1997, have not been adjusted for inflation. Hale noted that if they had been indexed, they would now be more than twice as high.
This has become a significant issue in high-cost states such as California and Massachusetts, where property values have sharply risen. According to Hale, this situation increasingly affects older homeowners who have remained in their homes for decades.
The National Association of Realtors (NAR) has reported that nearly 29 million homeowners—almost one-third of the US market—already risk facing capital gains taxes if they sell. NAR projects that by 2035, a majority of homeowners could exceed the current caps, including many middle-class families in fast-growing regions.
Potential Market Consequences of Eliminating the Tax
According to Shannon McGahn, executive vice president at NAR, abolishing the capital gains tax could “unlock” housing inventory by allowing homeowners, particularly seniors, to sell without fear of heavy tax bills. She argues this change could help alleviate the so-called “lock-in effect” that discourages mobility in the market.
Hale supports the view that removing this tax might free up housing supply, especially in high-priced areas. Without reform, she said, many owners could delay selling until death, at which point their heirs benefit from a stepped-up basis, resetting the property’s taxable value.
Yet not all experts agree on the broader market impact. According to Hannah Jones, senior economic research analyst at Realtor.com, the tax already applies to a “relatively small subset of sellers” and has limited influence on national housing activity. She warned that abolishing it could increase demand and intensify competition, particularly in markets where supply remains constrained.
