For many Americans, the biggest hurdle to selling their home isn’t always finding a buyer—it’s the tax bill.
But that could change. According to a recent article by CNBC, lawmakers are weighing a proposal that could double the tax break for home sellers, potentially allowing married couples to keep up to $1 million in gains tax-free when they sell their primary residence (1).
Supporters say the sweeping move could finally get longtime homeowners to sell, opening up more homes and giving younger potential buyers a chance in a market that’s been out of reach.
But not everyone is convinced.
Under current U.S. tax law, homeowners can deduct certain gains from capital gains taxes when selling their primary home. Right now, the limits according to the IRS are (2):
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$250,000 in benefits for single filers
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$500,000 for married couples filing jointly
These limits were set in 1997 and have not been lowered since then, even as home prices have risen across the country. This is due to the fact that many sellers go to the limit.
According to the National Association of Realtors, about 29 million homeowners, or 34%, could exceed the $250,000 exemption, while 8 million households, or 10%, could exceed the $500,000 cap for married couples (3).
When profits exceed these limits, sellers can face a capital gains tax of up to 20%, and an additional 3.8% tax for certain high-income households.
For homeowners who bought in hot markets decades ago, these taxes can be enough to make them think twice about selling.
To solve this issue, the legislators introduced more houses in the market law, which would double the exemption limit (4):
The proposal would also set limits on future inflation, hoping to prevent further inflation.
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According to CNBC, senators including Ted Cruz and Tim Scott have floated another idea: allowing homeowners to adjust their original purchase price for inflation before calculating capital gains.
Changes like these are meant to give homeowners a reason to sell, making it more profitable to cash in on their home’s value.
The debate comes at a time when the US housing market is facing a severe downturn. Realtor.com estimates that the country was short about 4.03 million homes in 2025, meaning there are millions fewer homes than needed to meet demand (5).
Some believe that reducing the tax burden could open up a housing inventory that has been foreclosed on for years.
Adam Michel, director of fiscal policy studies at the Cato Institute, shared in a blog post from January, “Expanding or creating new exemptions for gains in home sales may free up some existing housing stock so that retirees can downsize more easily and young couples can access the space they need to raise a family.” (6)
But other experts argue that taxes aren’t the main reason homeowners stay.
A Brookings Institution report found that most older homeowners would not benefit much from the proposal, meaning it may do little to change their behavior.
“It doesn’t do anything to solve the supply problem,” Howard Glickman, a non-resident fellow at the Urban-Brooking Tax Policy Center, told CNBC (1).
For many families, decisions about selling are driven more by lifestyle than by finances. They generally want to stay close to family or avoid the hassle of moving.
For homeowners who are likely to be sitting on large gains, the math can make a difference.
Imagine a couple who bought a house for $300,000 decades ago is now worth $1.5 million. After deducting their original purchase price, they will have a capital gain of $1.2 million.
Under current rules, married couples can exclude $500,000, and $700,000 is potentially subject to capital gains tax. If this gain were taxed at the 20% federal long-term capital gains rate, the couple could pay about $140,000 in taxes. If the 3.8% net investment income tax also applies, the tax bill could rise to approximately $166,600.
But if the exclusion increases to $1 million, only $200,000 of that gain will be taxable — potentially reducing the federal tax bill by about $40,000 to $47,600, depending on income. This difference can save some homeowners more than $100,000 in taxes.
It is important to note that the tax break only applies to primary residences and not rental properties or vacation homes.
For many Americans, their home is their largest asset and doubling the investment tax break may give some homeowners a strong push to sell. Whether this is enough to make a meaningful difference to the housing shortage is still an open question.
For now, the idea remains a proposal rather than pending legislation. While lawmakers and policy groups have debated raising the capital gains exclusion, Congress has yet to pass legislation to change the current restrictions. This means that homeowners who are considering selling will still need to plan for the current $250,000 and $500,000 exemptions unless the law eventually changes.
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CNBC (1); IRS (2); National Cattlemen’s Association (3); Congress.gov (4); Realtor.com (5); Liberty Tax (6)
This article provides information only and should not be used as advice. It is provided without warranty of any kind.
