Earlier in July, Rep. Marjorie Taylor Greene, R-Georgia, introduced a bill that would eliminate federal capital gains taxes on the sale of primary residences.
Greene said in a statement that the “commonsense” reforms included in the No Tax on Home Sales Act would deliver critical tax relief to homeowners and help increase housing supply nationwide, and in comments given this week from the White House, President Donald Trump said he was considering putting his support behind the proposal.
“We’re thinking about that,” Trump said in response to questions from reporters.
Currently, the IRS allows an exclusion of up to $250,000 ($500,000 for joint filers) in capital gains from home sales, but those limits haven’t been updated since 1997. As home prices have risen, Greene said, more middle-class homeowners are being hit with capital gains taxes that were originally intended for wealthy investors.
Writing about the potential policy update on LinkedIn, financial planning expert and educator Jeff Levine said he has been asked about the proposal frequently in recent weeks. Based on his preliminary analysis, the legislation would primarily benefit the wealthy.
“We already exempt up to $500,000 of gains for joint filers ($250,000 for single filers) from tax,” he wrote. “So, even without any changes, if a married couple bought a home for $600,000 20 years ago and put $200,000 of upgrades/repairs in over the years, they can sell their home today for up to $1.3 million without owing any tax.”
The bottom line, Levine said, is that the “vast majority” of taxpayers can already sell their primary residence tax-free, but there are some potential financial planning implications for advisors serving high-net-worth families.
To begin with, if all gains from the sale of a primary residence were to become tax-free, it could create some “VERY interesting” capital allocation decisions.
“For instance, a more expensive house will, on average, appreciate more (in gross dollars), than a less expensive home,” Levine observed. “So, would it make sense to use money that would otherwise go into stocks, bonds, ETFs, mutual funds, etc., to buy a larger home? With the idea that later on, a downsizing could unlock tax-free gains for future consumption?”
Its an intriguing possibility, Levine said, and another consideration is the potential affect on housing stock. As structured, he doesn't believe the bill would have a big impact.
“If this is really about not wanting people to feel ‘locked in’ to their current home, then wouldn't a much simpler, and more effective way of addressing that be to simply let people ‘roll over’ money from one primary residence to another?” he asked.
This would resemble the policy that exists for investment properties via a technique known as a 1031 exchange.
“That would get rid of the tax issue for people simply looking to make lateral-to-upgraded housing moves, but limit the sort of weird ‘buy extra house for investment purposes’ incentive I noted above,” Levine said.
Overall, Levine is skeptical that the bill alone would achieve Greene’s stated policy goals, but it could help on the margins.
“Even if you ‘fix’ the capital gains tax issue for the minority of people it impacts, it won’t change the fact that many individuals will continue to feel locked in their home by the comparatively low interest rate they have compared to the meaningfully higher rates we have today,” he observed.
“Plus, thanks to the One Big Beautiful Bill’s permanent extension of the $750,000 max principal limit on mortgage interest deductibility, more interest than ever before is nondeductible for new mortgages,” he added.
Pictured: Jeff Levine
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