Homeowners in these states are the winners if Trump ends capital-gains taxes for home sellers

Yahoo

25-07-2025

President Donald Trump says he's eyeing the elimination of capital-gains tax on home sales as a way to coax more people into selling their homes, amid a housing market that's been frozen for nearly three years by high prices and high interest rates.
After being stuck with the same tax rules for nearly three decades, any law change would be a sea change for many homeowners across the country.
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Yet the biggest winners would be clearly clustered in one state, according to a new analysis.
Home prices have risen sharply over the past few years, even as the housing market has largely stagnated. Many homeowners have ultralow mortgage rates that they are reluctant to give up, and home buyers are frustrated with an unaffordable market.
At the same time, many homeowners are reluctant to sell as their homes gain significant value. If they were to sell, they would have to pay taxes on the sale if their profits are steep enough — so the tax bite has kept a lid on housing supply, industry sources said.
'I absolutely believe that elimination of capital gains taxes will incentivize people to sell their homes,' Shabber Jaffer, a real-estate agent based in the San Francisco Bay Area, told MarketWatch.
Eliminating capital-gains tax on home sales 'could be a winning issue for Republicans' in the 2026 midterm elections, Greg Valliere, chief U.S. policy strategist at AGF Investments, said in a Wednesday note. 'We'll follow the capital-gains issue closely this fall — it could have a major impact on the sluggish housing industry.'
The White House declined to comment.
Individuals can now exclude $250,000 of their profits on a home sale from capital-gains taxes, while married couples can exclude $500,000 of their profits. These exclusion limits have been in place since 1997. Profits above that point are subject to capital-gains taxes up to 20%, depending on the rest of the seller's income. A 3.8% net investment income tax might also apply on the profit above the exclusion, depending on the seller's income.
In 1997, the median existing-home price was $126,100, which when adjusted for inflation is about $256,000. In 2024, the median annual existing-home sale price was $407,500, a 223% increase, said Jessica Lautz, deputy chief economist at the National Association of Realtors.
'The implications of this home-price increase are staggering,' said Lautz. The run-up in prices has made it harder for first-time home buyers to enter the housing market, on top of making downsizing an expensive proposition for seniors on fixed incomes. The NAR has been lobbying Congress for at least two years for a change in the capital-gains tax exemption.
Congress would have to pass a law to eliminate the capital-gains tax on home sales. Rep. Marjorie Taylor Greene, a Georgia Republican, introduced a bill seeking to do that, titled the No Tax on Home Sales Act, earlier this month. A previous bipartisan bill, titled the More Homes on the Market Act, was introduced two years ago and proposed doubling the exemption amount, but stalled in the House.
If capital-gains taxes on home sales were to be axed, it would be another major change for homeowners in Trump's second administration. It could also mark another way the tax code could hand a win to some housing markets, but not all of them.
The sweeping tax and spending bill Trump signed on the Fourth of July increased the amount of state income and local property taxes homeowners will be able to deduct on their taxes to $40,000, up from $10,000 previously, through 2029.
The higher SALT cap was one flashpoint in Republicans' One Big Beautiful Bill Act because critics said it was a costly giveaway to wealthier homeowners who can afford living in high-tax areas — often in Democrat-led states.
California lawmakers were part of the SALT caucus. Their state could win again under the bill if capital-gains taxes were eliminated.
In an exclusive analysis for MarketWatch, Realtor.com estimated the biggest beneficiaries of a removal of capital-gains taxes on home sales.
'This is largely a California story,' said Joel Berner, a senior economist at the company. 'Of all the homes that have appreciated by $250,000 or more since their last sale, a quarter of them are in California.' Florida is in second place, followed by New York.
State
% of homes appreciated over $250,000 since last sold
% of homes appreciated over $500,000 since last sold
California
25%
39.8%
Florida
9.6%
7.9%
New York
6.2%
7.2%
Washington
5.1%
5.9%
Massachusetts
4.3%
5%
New Jersey
4.9%
4.1%
Colorado
3.6%
3%
Virginia
3.2%
2.8%
North Carolina
3%
2.1%
Arizona
3.2%
2.1%
(Realtor.com is operated by News Corp subsidiary Move Inc.; MarketWatch publisher Dow Jones is also a subsidiary of News Corp.)
Jaffer, the real-estate agent, said that the average homeowner in San Jose holds their home for about 18 years.
Between June 2007 and June 2025, the total increase in the median single-family-home price in the San Jose area was about $925,000, he said. So if these homeowners sold their home, the profit they would make is over the capital-gains-exemption amount of $500,000 for married couples. 'Therefore, the average single-family-home owner would be paying capital-gains taxes on $425,050,' he said. At a 15% tax rate, that's about $64,000 in federal taxes.
Hence 'we anticipate that removing the capital-gains tax on home sales will boost inventory and buyer activity in the higher-dollar segments of the market,' Realtor.com's Berner said, noting that the effect will likely be most concentrated in California.
California, the most populous state in the U.S., faces a dire housing-affordability crisis, as rent costs and home prices have skyrocketed over the years. California Gov. Gavin Newsom, a Democrat, has made various efforts to bring down the cost of building new homes, including rolling back a landmark environmental-protection rule to speed up the process of building homes.
But a major change on the capital-gains tax might be another key solution to boost the number of homes for sale in the state.
Rep. Jimmy Panetta, a California Democrat representing a district along the state's central coast, sponsored a bill to double home sellers' capital-gains exclusion and index it for inflation.
'It's a good thing that the president finally is acknowledging the seriousness of the affordable-housing issue, not just in my congressional district, but also all across our country,' Panetta said in a statement. 'I've heard from many people who have grown out of their house and want to move or downsize, but they will lose much, if not all, of the profit from the sale of their home.'
Panetta said he's ready to work on solutions, including his bill. '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.'
The results of legislation altering the tax rules on home sales may vary state by state, and also by income.
To reap tax savings beyond today's rules, individuals would have to pull at least $250,000 in profits above the price they paid for their house. Married couples need to net at least $500,000 above what they paid.
An estimated 15% of homeowners would benefit from a change in capital-gains tax rules, according to the National Association of Realtors. These 'constrained' homeowners are not selling because the profits would trigger capital-gains taxes, NAR researchers noted.
These sellers would likely be richer and older, according to a separate analysis from the Budget Lab at Yale University.
Homeowners with gains above the current exclusion amounts had an average net worth of $5.7 million, according to Budget Lab researchers, who used data from the Federal Reserve's 2022 Survey of Consumer Finances.
The average 2022 home value for this demographic was roughly $1.4 million and their average income was $431,000. Their average age was about 65, researchers said.
It's not clear if removing capital-gains taxes will help the housing market, said Daryl Fairweather, chief economist at Redfin RKT. Homeowners near the exclusion limit might delay selling or have less motivation to make major home improvements that increase the cost basis of home, she noted.
'The most important consequence of the tax change is that it is a tax break for wealthy homeowners at the expense of all other tax payers,' Fairweather said.
Some aging homeowners may need the profits to pay for expensive healthcare going forward, she acknowledged. 'But elderly renters also struggle with eldercare expenses, so it doesn't make sense to address that problem in this manner,' Fairweather said.
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