Key insights
- Many long time homeowners face tax hurdles when selling their homes because the capital gains exclusion amount hasn’t changed since 1997.
- These limits can discourage moves such as downsizing or relocating, which keeps fewer homes available for buyers.
- Modernizing the exclusion could help unlock housing supply, particularly in high cost, supply constrained markets where owners face substantial taxable gains.
- Updating the exclusion is being discussed in policy circles, and the outcome could affect homeowners deciding whether a move makes financial sense.
Be prepared when policy changes influence your home sale.
If you’ve owned your home for many years — especially in a high‑cost, supply-constrained area — you may be sitting on a large gain. That can feel like a positive milestone, but it also may come with a tax bill that makes it harder to move when life circumstances shift.
Several policy groups and lawmakers have started discussing whether the capital gains exclusion for a primary residence should be raised. Their goal is to help ease housing supply shortages by reducing the tax barriers discouraging owners from moving.
Understanding how today’s tax rules may shape your options can help you make clearer decisions about your next move.
Why some homeowners feel stuck in place
Because the exclusion amounts — $250,000 for single filers and $500,000 for married couples — haven’t changed since 1997, selling a home often triggers significant taxable gains.
For owners considering downsizing or moving into a home better fitting their needs, these tax consequences can outweigh personal or financial motivations to relocate.
This tax-driven “lock-in” effect slows normal housing turnover, keeping existing homes off the market at a time when first-time buyers already face limited inventory.
Some policymakers think modernizing the exclusion could help break this cycle by lowering the after-tax cost of selling and encouraging more homeowners to list their properties.
Why the exclusion matters for housing supply
The exclusion was originally designed to protect middle-income homeowners. After nearly three decades of price appreciation, especially in constrained metro areas, it now covers far fewer people. As a result, many homeowners who would otherwise move face taxable gains deterring them from selling.
Modernizing the exclusion, such as raising the threshold or indexing it to home prices, could:
- Reduce tax friction discouraging otherwise-normal moves
- Return more existing homes to the market
- Improve mobility in supply-constrained regions
While adjusting the exclusion alone won’t solve a national housing shortage, it could meaningfully improve the flow of existing homes through the market, particularly in regions where new construction struggles to keep up with demand. Even modest increases in turnover could help ease pressure in markets where inventory remains persistently tight.
How the home sale exclusion works today
Homeowners may exclude some or all of the gain from the sale of their primary residence if they:
- Use the home as their main residence
- Own and live in the home for at least two of the past five years
- Have not used the exclusion in the previous two years
Because many sellers easily satisfy these requirements, the exclusion amount, not the qualification rules, is often the limiting factor.
What this could mean for you
If you bought your home years ago, your gain may be far higher than it appears at first glance. For example:
A homeowner who purchased a house in 2004 for $450,000 in a high‑cost metro area may find it’s now worth more than $1 million. After subtracting allowable adjustments, the gain could exceed today’s exclusion limits. That means part of the profit may be taxable — sometimes enough to discourage a move.
Thinking through this early can help you plan ahead, especially if you are considering:
- Downsizing
- Moving closer to family
- Buying a home that better fits your current lifestyle
- Relocating to a lower‑cost region
How CLA can help you with financial planning
Homeowners face a wide range of financial considerations — maintenance costs, insurance needs, budgeting choices, tax questions, future plans, and more. CLA helps you bring all of that into a clear, organized view so you can make confident decisions, whether you’re staying put, planning ahead, or simply trying to better understand where you stand today.
Our team evaluates impacts across income, investment, and real estate considerations and provides scenario analyses to help you prepare for outcomes under multiple policy paths.
We also identify planning opportunities and timing strategies so you can make informed tax, retirement, and cash-flow decisions — from everyday expenses to long-range goals.
Contact us
Learn how rules and policy may influence your home sale and understand your position before making a move. Complete the form below to connect with CLA.