Bipartisan bills to boost home sales via expanded capital gains exclusion

Bipartisan bills aim to boost home sales by expanding capital gains exclusion, offering a potential tax break for homeowners sitting on substantial equity.

More Homes on the Market Act

Congress is considering two nearly identical measures, dubbed the More Homes on the Market Act, which propose doubling the amount of capital gains taxpayers can exclude when selling their primary residence. The legislation is gaining traction among lawmakers from both parties, with about one-third of Congress now co-sponsoring the bills. The only real difference between the House and Senate versions lies in how they adjust for inflation, though both versions aim to increase the housing inventory available to buyers.

Current law allows single tax filers to exclude up to $250,000 in capital gains and married couples filing jointly to exclude up to $500,000. The proposed changes would raise these limits to $500,000 for single filers and $1 million for married couples. This section of the tax code has remained unchanged since 1997, even as home prices have roughly tripled over that period. The National Association of Realtors estimates that about one-third of homeowners currently have more equity in their homes than the current exclusion allows for single filers, a figure projected to grow to 56% by 2030.

Supporters argue that a higher exclusion limit could encourage long-time homeowners to sell, freeing up properties for first-time buyers. Kevin Brown, president of the National Association of Realtors, testified before a Senate committee in June that the legislation would help free up inventory without requiring new construction. He noted that many seniors remain in their homes due to the financial penalty associated with selling, a dynamic similar to how buyers were locked in by low interest rates.

Andrew Justus, a housing policy analyst at the Niskanen Center, suggested that changing tax rules on capital gains could pry open the single-family housing market. He argued that Congress could use tax policy to create a more fluid market, though the current bills focus primarily on primary residences.

Legislative Setting

The House version of the bill was introduced by Rep. Jimmy Panetta, a Democrat from California, while the Senate version was introduced by Sen. John Cornyn, a Republican from Texas. The House bill has 151 co-sponsors, predominantly Democrats, while the Senate version has 23 co-sponsors, mostly Republicans. This bipartisan support comes as housing affordability remains a central issue in Washington, D.C., and a focus for both parties heading into the midterm elections.

Trade groups and think tanks have also thrown their weight behind the legislation. The National Association of Realtors has actively lobbied for the bill, securing dozens of new co-sponsors and emphasizing the economic benefits of freeing up existing housing stock. As the bills move forward, the focus will be on whether the proposed changes can effectively address the supply constraints facing the housing market.