Empower Your Property Wealth: Eliminating Capital Gains Taxes on Home Sales could revolutionize retirement finances for seniors
Eliminating Capital Gains Taxes on Home Sales Could Boost Housing Market and Senior Finances
A proposed reform to eliminate capital gains taxes on home sales could provide significant financial relief and increased flexibility for older homeowners, particularly those with substantial home appreciation. This change could potentially encourage more seniors to sell their long-held primary residences, increasing housing market supply and alleviating housing shortages that drive up costs for younger and first-time buyers.
According to research conducted by the National Association of Realtors (NAR), states with the highest percentage of homeowners with equity exceeding the current federal capital gains tax exclusions often have high costs of living and some of the most expensive cities to live in the U.S, such as Hawaii, California, and Massachusetts. In Hawaii, for instance, 79.10% of single filers and 46.0% of married filers have equity above the $250,000 and $500,000 exclusion, respectively. Similarly, in California, 62.60% of single filers and 30.8% of married filers have equity above the $250,000 and $500,000 exclusion, respectively.
The current capital gains tax, even after using the existing exclusion, can be a significant financial disincentive for older homeowners to sell, particularly given the "stay-put penalty" that results from unexpected capital gains tax liabilities when selling. Many older homeowners have lived in their homes for decades, accumulating substantial equity due to rising property values.
Eliminating capital gains taxes on home sales could offer several benefits for retirees and the broader housing market. These include:
- Greater access to home equity without tax consequences, allowing retirees to fund retirement expenses, healthcare, or move to more suitable housing.
- Increased housing turnover, potentially easing inventory shortages and increasing housing affordability for others.
- More fairness in taxation by updating or removing outdated limits that currently disproportionately affect long-term homeowners.
However, it's worth noting that this change would apply only to primary residences, excluding second homes or investment properties, and would take effect prospectively, not retroactively.
In 2025, one-third of homeowners (approximately 29 million households) have built up more home equity than the current federal capital gains tax exclusion for single filers. By 2030, it is expected that 56% of homeowners will have built up more home equity than the current federal capital gains tax exclusion. If the current capital gains tax exclusion had been indexed for inflation, the cap would now be approximately $660,000 for individuals and $1.32 million for couples, according to research from the University of Illinois-Chicago.
President Trump voiced his support for eliminating capital gains taxes on home sales during a press conference, suggesting that this reform could significantly impact the financial outcomes for older homeowners, enhance housing market fluidity, and address current policy shortcomings tied to inflation and home price growth. The inventory of homes for sale is currently up 28.9% year over year but remains 12.9% below pre-pandemic levels, according to realtor.com, highlighting the potential impact of increased housing turnover on the housing market.
1. Abolishing capital gains taxes on home sales might contribute to senior personal finance by providing them with increased flexibility to access home equity without tax consequences, allowing them to fund retirement expenses or move to more affordable housing.
2. As a potential outcome of the proposed tax reform, increased housing market turnover could lead to easing inventory shortages, thereby promoting greater affordability for those seeking homes in the real-estate market.
