In a move that could reshape the U.S. housing market, former President Donald Trump has thrown his support behind a new legislative proposal to eliminate federal capital gains taxes on the sale of primary residences. The plan, which is gaining momentum in 2025, comes as soaring property prices push millions of homeowners beyond outdated tax thresholds first established nearly three decades ago.
If enacted, the measure—dubbed the No Tax on Home Sales Act—would mark the most significant change to residential real estate taxation since the late 1990s. Backers argue the law would give Americans, especially seniors and long-term homeowners, the freedom to sell without fear of crippling tax bills. Critics warn, however, that the policy could deepen budget deficits and further strain housing affordability in high-cost markets.
Current Tax Rule – How It Works Today
Under the current federal tax system, homeowners can exclude a portion of the profits from selling their primary residence:
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- Single filers: up to \$250000 in gains.
- Married couples filing jointly: up to \$500000 in gains.
To qualify, the homeowner must have lived in the property for two of the last five years. Any gains above the exclusion thresholds are taxed as capital gains at rates ranging from 15% to 20%, depending on income.
For decades, these exclusions shielded most homeowners from tax liability. But as home prices have skyrocketed—particularly in coastal states—the rules increasingly penalize families who have owned homes for many years.
What the Proposal Would Change
The No Tax on Home Sales Act would:
- Eliminate all capital gains taxes on the sale of primary residences.
- Remove the two-year residency requirement, ensuring even recent buyers can benefit.
- Abolish income-based exclusions, meaning no cap on tax-free profits.
In practice, this means every dollar of profit from selling a main residence would be free from federal capital gains tax.
| Rule | Current Law | Proposed Change |
|---|---|---|
| Exclusion (Single) | \$250000 | No limit |
| Exclusion (Married) | \$500000 | No limit |
| Residency Requirement | 2 years of last 5 years | None |
| Tax Rate on Excess | 15–20% | 0% |
| Inflation Adjustment | None | Not applicable |
Why Rising Home Prices Are Fueling Momentum
When Congress set the thresholds in 1997, the average home price was about \$175,000. Today, the median price exceeds \$420,000, with major metropolitan areas like San Francisco and New York well above \$1 million.
According to the National Association of REALTORS® (NAR):
- About 34% of individual homeowners now exceed the \$250,000 cap.
- Roughly 10% of married couples surpass the \$500,000 limit.
- In total, nearly 37 million homes are affected by outdated thresholds.
For many families, especially retirees looking to downsize, these taxes create a disincentive to sell—trapping equity in homes and reducing available housing supply.
Who Stands to Benefit the Most?
The proposal’s biggest winners would be long-term homeowners in high-cost regions such as California, New York, and Massachusetts, where decades of appreciation can easily push profits well past exclusion caps.
- Seniors and retirees: Many older Americans delay selling larger homes because taxes would eat away at equity. Eliminating the tax could free them to downsize or relocate.
- Frequent movers: Military families and workers relocating for jobs often fail the “two years out of five” rule. The new law would protect them as well.
- Middle-class households: Even those outside luxury markets have seen values rise dramatically, meaning more families risk unexpected tax bills.
Example scenarios under the new law:
| Scenario | Gain | Current Tax | Under Proposal |
|---|---|---|---|
| Single filer, \$350000 gain | \$2000 owed | \$0 | |
| Married couple, \$600000 gain | \$20000 owed | \$0 | |
| Married couple, \$300000 gain | \$0 owed | \$0 |
Supporters’ Arguments – Freedom to Move, Fairness Restored
Proponents argue that the existing law, untouched for nearly 30 years, is severely outdated. They frame the reform as a matter of fairness and mobility:
- Encouraging turnover – Eliminating taxes would allow homeowners to sell without penalty, easing the tight supply in housing markets.
- Protecting seniors – Retirees would no longer be punished for decades of homeownership.
- Simplifying the code – The proposal removes complex residency rules and exemptions.
Former President Trump has described the plan as part of a broader tax relief agenda, saying it would “unlock housing equity for millions of hardworking Americans.”
Critics’ Concerns – Revenue Loss and Market Impact
Opponents, however, raise serious objections.
- Revenue loss: The Congressional Budget Office estimates that even modest reforms, such as indexing the cap to inflation, could cost \$18.7 billion over a decade. Eliminating the tax entirely would cost much more.
- Potential abuse: Investors could attempt to reclassify rental or vacation homes as primary residences to avoid taxation.
- Housing affordability: Economists fear that removing the tax could spur even more demand in overheated markets, worsening affordability for first-time buyers.
Some lawmakers argue for a compromise: updating thresholds to reflect inflation rather than removing the tax altogether.
Next Steps in Congress
The No Tax on Home Sales Act is still in its early stages, but its high-profile backing ensures debate will be intense. Lawmakers are expected to explore:
- Budgetary impact: How much revenue the government stands to lose.
- Fairness: Whether unlimited exclusions unfairly benefit wealthier homeowners.
- Housing market effects: Whether the law would stimulate turnover or fuel speculative demand.
Hearings are likely later in 2025, with votes possible in early 2026.
What Homeowners Should Do Now
While nothing is final, homeowners considering a sale in the next 12–18 months should:
- Stay informed: Track updates from Congress and the IRS.
- Consult professionals: Tax advisors can help model scenarios under current law and proposed changes.
- Plan ahead: If the bill passes, waiting until 2026 could mean avoiding tens of thousands in taxes.
5 FAQs
Q1: What is the current capital gains tax rule for home sales?
A1: Single homeowners can exclude up to \$250000 in gains, and married couples up to \$500000, if they’ve lived in the property for two of the last five years. Gains beyond that are taxed at 15–20%.
Q2: What does the new proposal change?
A2: It would eliminate capital gains taxes entirely on primary residences, remove the residency requirement, and abolish income-based caps.
Q3: Who benefits most from the change?
A3: Seniors, long-term homeowners, and residents of high-cost housing markets would gain the most financial relief.
Q4: What are critics worried about?
A4: Revenue losses for the government, potential fraud from misreported residences, and risks of further inflating housing prices.
Q5: When could the proposal become law?
A5: The bill is still in early stages. Debate is expected in late 2025, with possible votes in early 2026.
