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Given the housing shortage in the U.S., some lawmakers want to reduce the capital gains tax on home sales. However, experts disagree on whether this idea could help address the country’s affordability crisis.
Senators Ted Cruz, R-Texas, and Tim Scott, R-S.C., sent a letter to Treasury Secretary Scott Bessent this week urging him to use his executive authority to reduce capital gains taxes by linking an asset’s “basis,” or purchase price, to inflation.
Under current law, investors pay capital gains tax on the difference between an asset’s basis and its selling price. However, according to the letter reviewed by CNBC, lawmakers want the Treasury to base the bill on inflation to reflect the price in today’s dollars.
Cruz and Scott said the tax break could encourage longtime property owners with significant equity to sell. The change would “increase the supply of housing for young families looking to purchase their first home,” the lawmakers wrote.
The U.S. housing supply gap — the difference between existing inventory and needed homes — reached an estimated 4.03 million homes in 2025, Realtor.com reported Tuesday. That’s up from 3.8 million in 2024.
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Cruz and Scott aren’t the only lawmakers scrutinizing capital gains from home sales.
In 2025, bipartisan lawmakers in the House and Senate introduced the More Homes on the Market Act, which could double current capital gains exemptions for primary home sales profits and adjust those numbers annually for inflation. The House bill was referred to the Ways and Means Committee, where it remains.
If passed as proposed, the exemptions would increase from $250,000 and $500,000, respectively, to $500,000 for single filers and $1 million for married couples filing jointly. The $250,000 and $500,000 limits have been the same since 1997.
A draft released by the Republican Study Committee in January under a “Reconciliation 2.0” framework would go further and eliminate capital gains tax entirely on properties sold to first-time homebuyers and on sales of rental homes to renters.
President Donald Trump expressed interest in the idea in July after former Rep. Marjorie Taylor Greene, R-Ga., introduced a separate proposal to eliminate the capital gains tax on primary home sales.
“If the Fed cut interest rates [interest] “If we raise tax rates, we wouldn’t even have to do that,” he told reporters at the time. “But we’re thinking about not taxing capital gains on houses.”
Who pays capital gains tax on home sales?
More real estate sellers are exceeding capital gains exclusion limits, according to a 2025 report from the National Association of Realtors, which has advocated for reform.
The organization estimated that 29 million homeowners, or 34%, could exceed the $250,000 exemption for single people and 8 million, or 10%, could exceed the $500,000 limit for married couples.
According to a 2025 analysis by The Budget Lab at Yale, homeowners with profits above the tax exemption tended to be wealthier and have higher incomes in 2022.
Anyone who exceeds the limit pays up to 20% capital gains tax on excess profits, depending on their taxable income. Some higher earners are also subject to an additional net capital gains tax of 3.8%.
How tax reform could affect the real estate market
While many experts say housing affordability is a critical issue, there are differing views on whether capital gains tax reform could be the solution.
In a letter to House Speaker Mike Johnson and Senate Majority Leader John Thune this week, dozens of conservative low-tax organizations — including the Market Institute, the Center for a Free Economy and Americans for Tax Reform — voiced their support for the More Homes on the Market Act.
“This tax burden discourages home sales, tightens housing supply and makes it harder for Millennial families to buy the single-family homes they need,” the activists wrote in a letter obtained by CNBC.
Separately, Adam Michel, director of tax policy studies at the Cato Institute, a libertarian think tank, said in a January report that expanding or creating new capital gains exclusions “could free up some of the housing stock.”
Other tax policy experts disagree.
Most senior households would not benefit from proposals to expand capital gains exemptions, according to a report from Brookings, a nonprofit public policy organization. As a result, the policy would do little to change sellers’ behavior, the report said.
“This will do next to nothing to solve the supply problem,” Howard Gleckman, a non-resident fellow at the Urban-Brookings Tax Policy Center, told CNBC.
“There are so many other reasons why older people don’t leave their homes,” said Gleckman, who also studies aging and long-term care policy. “The last thing on any of their minds is taxes.”
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