The enigma of the covert property value levy
In the ever-evolving housing market, the discussion surrounding capital gains tax exemption limits for home sales has gained significant momentum. Here's a breakdown of the current situation and proposed changes in the United States.
Upgrades such as a new kitchen, an added bathroom, or finishing the basement can increase your home's cost basis, lowering your taxable profit. Keeping records and documents related to these improvements can help lower your taxable gain.
As of mid-2025, the capital gains tax exemption limits on home sales remain unchanged legally, but there is significant legislative and political activity aimed at reforming or eliminating these limits. The existing exemption for the sale of a primary residence is $250,000 for individuals and $500,000 for married couples filing jointly, limits that have not been adjusted since 1997.
Proposals such as the No Tax on Home Sales Act, introduced by Rep. Marjorie Taylor Greene, aim to eliminate capital gains taxes on the sale of primary residences altogether. Bipartisan bills like the More Homes on the Market Act also address capital gains reform for home sales. Even former President Donald Trump has expressed interest in eliminating capital gains taxes on home sales. However, these proposals have not yet become law and face political debate regarding their impact and feasibility.
It's important to note that approximately one in three homeowners are at risk of the "hidden home equity tax," as dubbed by trade publication Realtor.com. The two years of primary residency don't have to be consecutive to qualify for the full exclusion.
Rising home values and/or equity stakes do not necessarily translate into taxable gains. Your home equity is the difference between your home's worth and what you owe on your mortgage. If the house you're selling was your primary residence and you lived in it for at least two out of the last five years before selling, you can exclude up to $250,000 in gains (single) or $500,000 (married and filing jointly).
State capital gains levies range from 2.5% to over 10%. New York and New Jersey impose some of the highest rates, with California topping the list at 13.3%. The rate and amount of capital gains tax you'll owe depend on your income and the state you reside in.
Eliminating capital gains taxes may not have the intended impact of bringing down home prices across the nation. Some financial experts argue that it would mainly benefit wealthier, higher-income, and older homeowners. Not many homes are affected by the capital gains tax, with estimates suggesting that it impacts approximately 10 to 15 percent of homes.
The majority of homebuyers are married couples, who enjoy a doubled exclusion up to $500,000 when filing jointly. Eliminating capital gains taxes could have unintended negative impacts, such as a major loss of revenue at both the federal and state levels.
In conclusion, while the capital gains tax exemption limits on home sales remain unchanged, there is ongoing debate and proposed changes aimed at reflecting current housing market realities. Homeowners should carefully consider any significant upgrades and keep records to help lower their taxable gain. It's crucial to stay informed about the evolving landscape of capital gains tax exemptions for home sales.
Investing in home improvements, such as a new kitchen or adding a bathroom, can help increase your home's cost basis, potentially reducing your taxable profit. In the realm of personal-finance and real-estate, various legislative proposals, including the No Tax on Home Sales Act, aim to reform or eliminate capital gains tax exemption limits, which could impact your profit from home sales.
