Joel Friedman, 71, wants nothing more than to sell the house he’s called home for more than 30 years.
The five-bedroom, 5,000-square-foot southern California home is too big for Friedman and his wife, Kathryn, who are retired empty-nesters. They’re eager to downsize to a smaller, single-story house in a 55+ community where they won’t have to worry about endless yard work and rising home maintenance costs.
But the couple has delayed the move. That’s because they don’t want to pay the significant capital gains tax they’d incur if they sold their home. Since 1997, home sellers have faced a capital gains tax — up to 20% based on income — on home sales with profits over $500,000 for married couples and $250,000 for single filers.
“There are a million reasons why we’d like to move, but we’re not because the tax is just burdensome,” Friedman said.
The couple is relying on the profits from their future home sale to help fund their retirement. Friedman is concerned that his Social Security checks and his wife’s pension won’t be enough to cover healthcare bills and long-term care as they age.
They’re among a growing number of potential home sellers facing a hefty tax that’s discouraging them from parting with their valuable properties. This has likely helped exacerbate a shortage of family-sized homes on the market. Many of those affected are older people who are looking to downsize but are relying on their homes to be their retirement nest eggs.
There may be relief on the horizon — and it’s a bipartisan effort.
President Donald Trump recently said he’s considering entirely eliminating the capital gains tax on home sales to help juice the housing market amid persistently high interest rates.
“If the Fed would lower the rates, we wouldn’t even have to do that,” Trump told reporters in the Oval Office on July 22. “But we are thinking about no tax on capital gains on houses.”
Growing desperate to move, the Friedmans finally put their house on the market in May for nearly $4.5 million. But now that Trump and members of Congress are talking about eliminating the tax, they’re letting their listing expire and hoping the law changes before they put it back up for sale.
Safe-guarding their nest egg
In part because home prices have soared in recent years, the share of home sales subject to the tax has more than doubled in the past few years.
About 34% of America’s homeowners — 29 million people — could exceed the $250,000 cap for single filers if they were to sell, and 10% could exceed the $500,000 threshold, the National Association of Realtors found in a 2025 report. In 2023, 8% of US sellers made more than $500,000 in profit on the sale of their homes, the property data firm CoreLogic found. That’s up from 1.3% in 2003 and 3% in 2019.
If the threshold had been adjusted for inflation when it was implemented, the $250,000 cutoff for individual home sellers in 1997 dollars would be about twice as high — $496,000 — in 2024 dollars.
Some housing economists believe that increasing the threshold for the tax or eliminating the levy altogether could boost crucial housing inventory by incentivizing homeowners to sell. But others are skeptical that it would make much of a difference.
“This doesn’t necessarily lead to an increase in inventory; it just leads to a turnover in the housing market, more home sale activity,” particularly in expensive markets in places like California and New York, said Selma Hepp, the chief economist at CoreLogic.
The real-estate company Redfin reported that as of 2022, empty-nest boomers owned twice as many homes with three or more bedrooms as millennials with kids.
Mary Ellen Taylor, 75, is one of those homeowners. She and her husband would like to downsize from their six-bedroom Washington, DC, home, but they’re staying put in part because of the capital gains tax. Taylor, who worked for decades in housing finance regulation, argued that the policy incentivizes boomers like herself to hold onto their large homes, when they should be selling them to families.
“With all the fuss that is made, rightly so, about the supply of housing, having tax incentives that run completely counter to what your public policy aims of increasing the supply of housing is silly,” Taylor said. “I don’t think you want a bunch of 75-year-olds occupying six-bedroom houses.”
A bipartisan issue with complicated impacts
Two weeks before the president floated eliminating the tax on home sales, Republican Rep. Marjorie Taylor Greene introduced legislation seeking to do just that. Greene celebrated Trump’s comments as an endorsement of her No Tax on Home Sales Act.
There’s also Democratic support for reforming the tax.
Rep. Jimmy Panetta, a California Democrat whose district includes several pricey coastal regions, first introduced a bill in 2022 that would double the tax exclusion to $500,000 for individuals and $1 million for joint-filing couples and index it to inflation. The More Homes on the Market Act, which has cosponsors across the aisle, aims to incentivize more homeowners to sell and boost housing inventory.
Panetta said he’s willing to work with Trump and Republicans on “a quick and rewarding way to incentivize people to sell their homes and keep intact their nest egg.”
“I just hope that the President is serious about doing something, and not just saying it, when it comes to a fix for the affordable housing issue,” he said in a statement to Business Insider.
As with any major policy change, there could be big unintended consequences down the road.
Hepp warned that sellers who walk away with extra cash in hand would then have more money to spend on their next home, which could put upward pressure on home prices. In a CNBC interview, Redfin chief economist Daryl Fairweather argued that changing the tax could perversely incentivize some homeowners who’d been planning to sell before reaching the current tax threshold to hold onto their homes for longer.
Even if the tax break stimulates home sales, it won’t address the fundamental shortage of housing across the country. Older homeowners who finally sell their homes and move still need to live somewhere.
“We’re still stuck with this problem of lack of housing in the US and I think that’s the problem that should be tackled. How do we build more, less expensively and more quickly?” Hepp said.
Reducing the capital gains burden would also disproportionately benefit higher-income Americans, even as many of these same households receive other forms of tax relief under Trump’s “one big beautiful bill.” As part of that law, many wealthy homeowners in high-tax states will benefit from an increase to the cap on the state and local tax deduction.
Eliminating the tax on home sales would also cost the federal government in lost revenue at a time when Republicans are adding at least $3.4 trillion to the national debt over the next decade.
Despite her support for reform, Taylor believes the tax code is “wildly to the benefit of more affluent people,” and worries that eliminating the capital gains tax could further skew the US tax code in favor of wealthier people.
David Levin, 71, agrees that reforming the tax would benefit lucky homeowners like himself who’ve seen their home equity soar over decades of appreciation. The couple bought their four-bedroom Manhattan Beach house for $632,000 in 1991, and it’s now worth an estimated $2.8 million, according to a local real-estate agent Levin consulted.
While they’re ready to sell and downsize, with the capital gains tax they’d face under current law, Levin says they wouldn’t make enough profit on their home sale to buy a new place. Even a much smaller home in the coastal California city would be out of budget, he said.
“The way the law stands today, we’re staying put in a home bigger than we need,” Levin said.
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