Millions of U.S. Homeowners Could Benefit From Capital Gains Tax Elimination
A new analysis from Redfin reveals that eliminating the capital gains tax on home sales could have a profound impact on millions of homeowners across the United States particularly in high-value housing markets. The study shows that nearly 26% of U.S. homes have gained over $250,000 in value, and 8% have appreciated by more than $500,000 since their last sale. These figures highlight the large number of Americans who could benefit if recent proposals to scrap capital gains taxes on real estate are passed into law.
💰 What’s at Stake for Homeowners?
Currently, homeowners are exempt from paying capital gains tax on the first $250,000 in profits from the sale of their primary residence or $500,000 for married couples filing jointly as long as they’ve lived in the home for at least two out of the last five years. Any profits beyond those thresholds are taxed, usually at a 15% capital gains rate (though it can range from 0% to 20% based on income).
Redfin’s report estimates that:
- Homes that have gained over $250,000 carry an average unrealized gain of $384,606, translating to a potential $20,104 tax bill.
- Homes that have appreciated over $500,000 show a median gain of $712,986, which could cost a seller $31,948 in capital gains tax.
These figures don’t account for deductions like home improvements or selling costs, but they underscore how much is at stake for homeowners sitting on significant equity.
“Many older homeowners say they’ll never sell but that could change if they didn’t have to pay capital gains tax,” says Daryl Fairweather, Chief Economist at Redfin. “Removing that financial barrier could free up a massive amount of inventory in today’s tight housing market.”
🏘️ National Housing Gains at a Glance
Redfin’s national snapshot shows that the average U.S. homeowner has gained about $144,543 in value since purchasing their property comfortably under the current capital gains exemption. This means most sellers wouldn’t owe taxes on their profit if they sold today. But in expensive coastal markets, appreciation levels are often far higher, pushing many owners beyond the exemption threshold.
| Home Value Gain | Share of U.S. Homes | Median Capital Gain | Estimated Tax (15%) | Median Home Value |
|---|---|---|---|---|
| $500,000+ Gain | 8% | $712,986 | $31,948 | $1,229,076 |
| $250,000+ Gain | 25.9% | $384,606 | $20,104 | $720,111 |
| National Average (All Homes) | — | $144,543 | $0 | $385,700 |
States That Would Gain the Most
Not surprisingly, homeowners in high-cost, high-growth states like California, Hawaii, and Massachusetts stand to gain the most if capital gains taxes on home sales are lifted.
- California tops the list, with 62.3% of homes gaining over $250,000 and a third of homes appreciating over $500,000.
- Hawaii follows closely, with 61% and 34.6%, respectively.
- Massachusetts, Washington, and New Jersey round out the top five, with more than half of homes in each state gaining over a quarter-million dollars in value.
| State | Median Home Value | % Over $250K Gain | % Over $500K Gain | Median Capital Gain |
|---|---|---|---|---|
| California | $766,896 | 62.3% | 33% | $332,659 |
| Hawaii | $834,015 | 61% | 34.6% | $338,346 |
| Massachusetts | $648,604 | 58.4% | 20.8% | $291,011 |
| Washington | $621,091 | 54.1% | 19.4% | $270,412 |
| New Jersey | $610,210 | 52.2% | 15.4% | $260,587 |
🏦 A Housing Market Ripple Effect?
If passed, eliminating the capital gains tax on home sales could lead to a surge in housing inventory, as long-time owners may be more willing to cash in on their equity without fear of a large tax bill. This, in turn, could have cooling effects on home prices especially in inventory-starved cities.
It could also open the door for younger buyers and downsizers, as more properties become available in markets that have long been dominated by owners holding on to homes for decades.
“Removing the tax could be a game-changer for empty nesters or retirees,” said Fairweather. “Many are house-rich but reluctant to sell because of the financial hit. This could give them the freedom to downsize or relocate.”
But Who Really Benefits?
While the potential savings are huge, the benefits aren’t evenly distributed. The biggest winners would be wealthier homeowners, especially those in coastal and high-growth states. In contrast, many areas in the Midwest and South where home prices tend to be lower would see less impact.
Fairweather warns, “This isn’t a middle-class windfall. These are typically million-dollar homes that are already out of reach for most Americans.”
📌 Final Thoughts
Eliminating the capital gains tax on home sales is a policy move that could reshape the housing landscape but its benefits would skew toward wealthier homeowners. While it may boost housing supply and create more movement in the market, it also raises questions about fairness and long-term fiscal impact.
Still, for the 8% of Americans whose homes have gained more than half a million in value, the potential savings are impossible to ignore. For direct financing consultations or mortgage options for you visit 👉 Nadlan Capital Group
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