Reap Retirement Benefits from Home Equity: The Potential Impact of Abolishing Capital Gains Taxes on Property Sales
The housing market in the United States is facing challenges, particularly for new buyers and older homeowners. According to research from the National Association of Realtors (NAR), by 2030, 56% of homeowners in the US are expected to have built up more home equity than the current federal capital gains tax exclusion for single filers. This significant impact of capital gains tax on home sales for older homeowners is causing a "stay-put penalty," disincentivizing them from selling and downsizing, which suppresses housing supply and limits market mobility.
By 2035, over half (54.9%) of homeowners aged 65 and older are projected to be exposed to capital gains tax liability above the exclusion threshold. This growing tax burden can deplete the housing wealth retirees rely on, particularly in high-growth retirement states like Nevada, Arizona, and Florida.
Proposed capital gains tax elimination policies, such as the No Tax on Home Sales Act introduced by Rep. Marjorie Taylor Greene, aim to address this issue. These reforms focus on primary homes and are not retroactive. If implemented, these policies could have several benefits.
Benefits of Eliminating Capital Gains Tax on Home Sales
- Increased housing turnover: Eliminating the capital gains tax on home sales would encourage retirees and other long-time homeowners to sell larger, appreciated homes without fear of a tax hit, thus boosting housing supply.
- Easing housing shortages and improving affordability: More homes coming onto the market would ease housing shortages and improve affordability for younger buyers and first-time homebuyers.
- Greater financial flexibility for retirees: Older homeowners would have greater financial flexibility to downsize, unlock home equity, and reduce financial strain caused by capital gains taxes on appreciated homes.
- Improved financial security: More liquid assets would be available for older homeowners, improving their financial security and ability to cover unexpected expenses.
States like Missouri have already begun cutting state capital gains taxes, which has stimulated market activity. Similar federal changes could have broad positive effects.
Notably, Hawaii, Washington, California, and Massachusetts have a high percentage of homeowners with equity exceeding the current capital gains tax exclusions. In Washington, 64.80% of homeowners have equity exceeding the $250,000 exclusion for single filers, and 30.8% have equity exceeding the $500,000 exclusion for married filers. The numbers are similar in Hawaii, California, and Massachusetts.
President Trump has voiced his support for eliminating the capital gains taxes on home sales. If implemented, this reform could allow older homeowners to downsize without a hefty tax bill, potentially reducing their living expenses and maintenance burdens.
Accessing the full value of their home to cover increasing living expenses, long-term care, or other medical needs in retirement could be possible if the capital gains tax on home sales is eliminated. In 2025, one-third (approximately 29 million) of homeowners in the US have built up more home equity than the current federal capital gains tax exclusion for single filers.
Before the current exclusion was implemented, sellers could defer paying capital gains taxes on the sale of their homes if they purchased another home for the same or greater value. However, they had to keep decades of receipts and were hit with taxes if they wanted to downsize. Eliminating the capital gains tax on home sales could encourage more housing turnover, potentially easing housing shortages and making homes more affordable for younger generations and first-time buyers.
If the current capital gains tax exclusion had been indexed for inflation, the cap for individuals would be approximately $660,000, and for couples, it would be approximately $1.32 million, according to research from the University of Illinois-Chicago. Eliminating the capital gains tax on home sales could provide older homeowners with the freedom to downsize without a hefty tax bill, potentially reducing their living expenses and maintenance burdens.
In summary, eliminating or reforming the capital gains tax on home sales would relieve a growing tax burden on older homeowners, promote housing market fluidity, increase home availability, and reduce financial stress for retirees and homebuyers alike.
- The proposed elimination of capital gains tax on home sales, such as the No Tax on Home Sales Act, could potentially improve personal-finance management for retirees by providing greater financial flexibility and reducing their reliance on home equity, which is particularly relevant in high-growth retirement states.
- The implementation of capital gains tax elimination policies could contribute to a thriving real-estate market by increasing investing opportunities, as more homes become available due to increased housing turnover, thereby easing shortages and improving affordability for new buyers and first-time homeowners.
