Key Takeaways
- A recent US legislative proposal to eliminate federal capital gains tax on home sales, while unlikely to pass, serves as a potent political signal addressing voter concerns over housing affordability and the changing structure of the property market.
- The current tax framework, with its $250,000 (single) and $500,000 (married) profit exemptions, already shields the vast majority of home sellers. The proposed change would therefore disproportionately benefit a small subset of owners: those in high-value coastal markets and long-term holders with substantial appreciation.
- Far from improving affordability for typical buyers, the policy could unintentionally fuel speculative demand, increase price volatility, and offer a significant tax advantage to large-scale institutional landlords, allowing them to churn portfolios without tax friction.
- The fiscal impact, while difficult to precisely quantify without official scoring, would represent a non-trivial loss of federal revenue. This would necessitate either spending cuts, increased borrowing, or compensatory tax increases elsewhere, introducing new risks for investors.
A recent legislative manoeuvre in the US House of Representatives has proposed the complete elimination of federal capital gains tax on the sale of primary residences. While its prospects of becoming law in the current political climate are exceedingly slim, the proposal itself is a noteworthy indicator of the immense pressure building within the US housing market. It functions less as a serious policy initiative and more as a political barometer, reflecting widespread public anxiety over affordability, institutional encroachment, and the tax implications of a decade of supercharged asset price inflation. For investors, its analysis offers a useful lens through which to examine the structural fragilities and political risks embedded in the modern real estate market.
Decoding the Proposal: More Signal Than Substance
The “No Tax on Home Sales Act,” introduced by Representative Marjorie Taylor Greene, seeks to abolish a tax that is often misunderstood by the public. Under current US law, homeowners are already afforded a substantial tax shield. An individual can exclude up to $250,000 of profit (the sale price minus the purchase price and improvement costs) from their taxable income, and a married couple filing a joint return can exclude up to $500,000. To qualify, the owner must have owned and used the property as their primary residence for at least two of the five years preceding the sale. (1)
The proposed legislation would change this framework by making the exclusion unlimited. This shift is more dramatic in theory than it would be in practice for the median homeowner.
| Filing Status | Current Capital Gains Exclusion | Proposed Exclusion |
|---|---|---|
| Single Filer | Up to $250,000 of profit | Unlimited |
| Married Filing Jointly | Up to $500,000 of profit | Unlimited |
Who Actually Pays This Tax?
Given that the median home sale price in the United States hovers around $400,000, the existing $500,000 exclusion for married couples means a very small fraction of sales currently trigger any federal capital gains tax. (2) The tax primarily affects homeowners in high-cost metropolitan areas (such as New York City or coastal California) or those who have owned their homes for several decades, allowing appreciation to far exceed the exclusion threshold. Therefore, the direct beneficiaries of this proposed act would not be the average family or first-time seller, but rather a narrow and relatively wealthy segment of the property-owning population.
Unintended Consequences for Market Structure
Proponents might argue that eliminating the tax would reduce friction and encourage older homeowners to sell, thereby increasing housing supply. This “lock-in” effect is real, but removing it could introduce more problematic distortions.
Fuel for Speculators and Institutions
A zero-tax environment on home sale profits could create a powerful incentive for short-term speculation. The current two-year residency requirement acts as a brake on house flipping, but the complete removal of a tax penalty would make rapid buy-and-sell strategies more lucrative. This could inject further volatility into local markets, exacerbating the very affordability problems the bill purports to solve.
More significantly, such a policy would be a profound gift to the growing class of institutional single-family landlords. While the primary residence rule would still apply, the general anti-tax sentiment could pave the way for broader real estate tax reductions. If similar tax relief were extended to investment properties, it would allow large firms to optimise and churn their vast portfolios of homes without tax consequence, further cementing their competitive advantage over individual buyers and distorting market fundamentals.
The Illusion of Affordability
The core issue for most prospective buyers today is not the seller’s potential capital gains tax bill, but rather the prohibitively high sale prices and mortgage rates. Easing the tax burden on sellers does little to address the purchasing power of buyers. In fact, by potentially increasing demand from speculators and allowing sellers to capture the tax savings for themselves in the form of higher asking prices, such a policy could lead to a net negative impact on affordability.
The Fiscal Reckoning
While the number of households paying this tax is small, the sums involved from high-value properties can be substantial. The revenue loss from eliminating the tax would need to be absorbed by the federal budget. According to an analysis by the Congressional Budget Office of a similar, though not identical, proposal, the revenue impact can run into the tens of billions of dollars over a decade. (3) This creates a fiscal hole that must be filled by either cutting government services, increasing the national debt (thereby putting upward pressure on interest rates), or raising taxes elsewhere. The downstream effects of these compensatory measures could easily negate any localised benefit in the housing market and create new headwinds for investors in other sectors.
Conclusion: A Political Barometer, Not a Market Mover
Investors should view this proposal not as an impending market catalyst, but as a reflection of a deeper political and economic shift. The conversation around housing has moved from a simple supply-and-demand framework to one that includes institutional ownership, tax policy, and wealth inequality. The bill is unlikely to advance, but the populist sentiment it taps into is a powerful force that will continue to shape policy debates.
As a speculative hypothesis, the increasing frequency of such proposals may signal a coming pivot in how governments address asset inflation. After more than a decade of relying on monetary policy, the focus may shift towards more direct fiscal and tax interventions. For asset managers, this implies that legislative risk, particularly around tax treatment for capital gains across all asset classes, is becoming an increasingly important variable to model and monitor.
References
(1) Internal Revenue Service. (n.d.). Topic No. 701, Sale of Your Home. Retrieved from https://www.irs.gov/taxtopics/tc701
(2) National Association of Realtors. (2024). Existing-Home Sales data. While specific monthly figures vary, median prices have consistently been in the $380,000 to $420,000 range in recent periods.
(3) Congressional Budget Office. (2018, December 13). Options for Reducing the Deficit: 2019 to 2028. See Option: “Repeal the Exclusion of Net Capital Gains on Sales of Principal Residences.” The CBO estimated this would increase revenues by $115 billion from 2019 to 2028. Retrieved from https://www.cbo.gov/budget-options/54667
unusual_whales. (2024, August 27). [Post announcing Marjorie Taylor Greene has introduced the No Tax on Home Sales Act]. Retrieved from https://x.com/unusual_whales/status/1828874406921490522
