Key Takeaways
- Trump considers eliminating capital gains tax on primary home sales, linking it to Fed rate cuts .
- Current law exempts $250K (single) / $500K (married) gains since 1997—unadjusted for inflation .
- 29M+ homeowners could exceed exemption thresholds today; high-cost areas hit hardest .
- Critics argue removal primarily benefits wealthy sellers (avg. net worth: $5.7M) .
- NAR claims tax creates “stay-put penalty,” freezing inventory as seniors delay downsizing .
The Proposal in a Nutshell
Trump’s Oval Office remarks hit like a whiskey shot—no chaser. “We are thinking about no tax on capital gains on houses,” he told reporters, flanked by leather chairs and Philippine President Ferdinand Marcos Jr. . He framed it as a housing market fix, snarling that the Federal Reserve’s refusal to slash rates forced his hand. “If the Fed would lower the rates, we wouldn’t even have to do that” . Within hours, Rep. Marjorie Taylor Greene claimed his words endorsed her No Tax on Home Sales Act—a bill she’d dumped into Congress two weeks prior .
How Home Sales Taxes Work Today
Sell your primary residence? The IRS lets you pocket $250K profit tax-free if single, $500K if married—provided you lived there 2 of the last 5 years . Cross those thresholds? Gains face capital taxes: 0%, 15%, or 20%, depending on income. Throw in another 3.8% net investment tax for high earners . Key twist: Those exemption caps froze in 1997. Home prices didn’t. Median values exploded 239% since then—$124,800 to $422,800 . Now 34% of homeowners sit on enough equity to blow past the $250K cap. Ten percent breach $500K .
Who Actually Pays This Tax?
Not the first-time seller in Cleveland. Not the young family cashing out after five years. The tax bites three groups:
- Long-haul homeowners: People holding properties 20-30 years, watching paper gains balloon beyond half a million .
- High-cost market residents: Californians, Bostonians, Coloradans—where even modest houses now clear $1M .
- Wealthy sellers: Yale’s Budget Lab found homeowners above exemption limits averaged $5.7M net worth. Those below? $1M .
CoreLogic data shows 8% of 2023 home sales generated gains over $500K—double 2019’s rate .
The “Stay-Put Penalty” Argument
Lawrence Yun, NAR’s chief economist, calls it “quietly distorting the housing market.” Seniors eyeing retirement communities balk at six-figure tax bills. Couples needing space freeze like deer—trapped between high mortgage rates and higher capital gains . NAR’s study claims 29 million homeowners now live in “equity cages.” By 2035, they project 70% could exceed $250K gains . Greene’s bill pitches itself as a jailbreak: “Unlocks equity, fixes shortages, supports families” .
Why Critics Call It a Windfall for the Rich
Stephen Kim, Evercore ISI housing analyst, scoffs: “Frankly, that’s not what really matters for the housing market.” He points to instability from Trump’s tariffs and policy swings as the real inventory killer . RedFin’s Daryl Fairweather warns eliminating the tax could backfire: Some sellers rush listings before hitting the gain threshold. Remove the tax, and they might linger longer . And Yale’s data is stark: Benefit flows to households with net worths six times the national median .
Regional Disparities: Ground Zero
This isn’t a national story. It’s a coastal one. In Utah, home values doubled since 2015. Washington state? Prices ballooned 82% in a decade . NAR maps show California, Massachusetts, and Colorado as epicenters. A $1.5M bungalow in San Jose—bought for $200K in 1995—could land a $700K federal tax bill today after exemptions . Meanwhile, Ohio or Iowa sellers rarely sniff $250K gains.
The Deficit Elephant
Trump just signed a $3.4 trillion deficit-ballooning tax package. Nixing capital gains on homes? No official cost yet. But Howard Gleckman at Urban-Brookings Tax Policy Center predicts Congress would balk: “More likely to raise the exemption than eliminate the tax entirely” . Fairweather suggests a cheaper fix: “Reduce taxes on home improvements—like adding an ADU” .
Alternative: Adjust the Damn Threshold
Even NAR’s lobbyists don’t push full elimination. Their 2025 proposal: Double exemptions to $500K (single) / $1M (married)—then index to inflation. A 2022 bipartisan bill tried exactly that. It died quietly . Why? Politics. Raise the cap helps middle-class retirees in hot markets. Abolish the tax fuels yacht-and-vineyard imagery. Trump’s team knows the difference.
Political Theater or Likely Law?
Watch Greene. Watch the Fed. If Powell cuts rates by September, Trump might shelve the idea. If rates cling to 5%, the bill gets legs . Treasury Secretary Scott Bessent already eyes Powell’s 2026 exit. NEC Director Kevin Hassett hints at “looking into” his removal . But as one White House aide muttered off-record: “Everything’s a bargaining chip. Especially taxes.”
Frequently Asked Questions
Q: Would Trump’s plan apply to second homes or rentals?
A: No. Greene’s bill—and Trump’s comments—target primary residences only. Investment properties still face full capital gains .
Q: Could you still deduct home improvements?
A: Yes. Costs like renovations, new roofs, or kitchen remodels still reduce taxable gains by increasing your home’s “basis” .
Q: How soon could this pass?
A: Unclear. Trump’s last tax bill required 18 months of wrangling. With elections looming, 2025 action seems unlikely .
Q: Does the tax apply to inherited homes?
A: No. Heirs get a “step-up in basis,” meaning the home’s value resets to market price at inheritance .
Comments
Post a Comment