Home Sale Tax Talk: What Could Change for Owners?

A recent discussion has sparked interest in a potential change to capital gains taxes on home sales. The idea, floated by a prominent political figure, suggests eliminating these taxes entirely. This has led some to speculate about the implications for homeowners. Currently, capital gains taxes apply when a home is sold for more than it was purchased, after accounting for certain costs. The rules are a bit complex. If a home is sold within a year of purchase, the profit is taxed as ordinary income. However, if the home has been lived in for at least 24 months within the past five years, a significant portion of the profit is exempt from capital gains taxes. Single filers can exempt up to $250, 000, while married couples filing jointly can exempt up to $500, 000.The tax rates for gains above these exemptions vary based on income. In 2025, those with lower incomes may pay no tax on gains above the exemption, while higher incomes could face rates of 15% or 20%. These rates are generally lower than the top ordinary income tax rates. Not everyone is affected by capital gains taxes on home sales. Those living in areas with significant home price increases, long-term homeowners, and high-income individuals are more likely to face these taxes. Studies suggest that a growing number of homeowners may exceed the current exemption thresholds, potentially discouraging them from selling their homes. Critics argue that the current exemption levels, unchanged since 1997, have lost value due to inflation. This could be particularly challenging for older homeowners looking to downsize or move to retirement facilities. Eliminating the capital gains tax could benefit wealthier homeowners more, as they are more likely to have gains exceeding the exemption thresholds.