If you've owned your home for a while, you may already sense that something feels off about the current rules around selling it. You've built real equity, you're thinking about downsizing or relocating, and then you realize that a tax bill could significantly change your plans. That friction — shared by millions of Americans — is now drawing unusual attention from lawmakers on both sides of the aisle.
Here's a plain-language look at what's being debated, what the numbers actually show, and where things stand today.
The Rule That Hasn't Changed Since 1997
Under current federal law (Section 121 of the Internal Revenue Code), homeowners who sell their primary residence can exclude a portion of their profit from capital gains taxes. The thresholds are $250,000 for single filers and $500,000 for married couples filing jointly. Gains above those amounts are taxed at rates ranging from 15% to 20%, depending on income. Higher earners may also be subject to an additional 3.8% net investment income tax on amounts above the exclusion.
Those limits were set in 1997 — and have never been adjusted for inflation.
According to the Congressional Research Service, if those thresholds had simply tracked average home price appreciation between 1998 and 2025, they would now stand at approximately $720,000 for single filers and $1,440,000 for married couples. Even adjusting only for general economic inflation (using the GDP deflator), the figures would be closer to $457,000 and $913,000 respectively.
The median home price in the United States has nearly tripled since 1997.
The "Lock-In Effect": What the Data Shows
The National Association of Realtors released a 2025 analysis estimating that approximately 29 million homeowners — roughly 34% of all owners — may already have accumulated gains exceeding the $250,000 single-filer threshold. Another 8 million are estimated to be above the $500,000 married-couple limit.
This dynamic has a name: economists and housing researchers call it the "lock-in effect." When the potential tax bill from selling a home is large enough, many owners choose not to sell — even when their circumstances would otherwise prompt a move. Seniors looking to downsize, families relocating for work, and long-time owners wanting to access their equity are among those most affected.
Researchers at the Bipartisan Policy Center and the Budget Lab at Yale have noted that those most likely to exceed the caps tend to be longer-term homeowners in markets where prices have appreciated significantly — a category that spans many geographic areas and income levels, though it skews toward higher net worth.
The U.S. housing supply gap stood at an estimated 4.03 million homes in 2025, according to Realtor.com — up from 3.8 million the year before. Some housing economists have suggested that reform of the capital gains exclusion could unlock additional inventory, though analysts differ on the magnitude of that effect.
What Congress Is Considering
Two pieces of legislation in the current 119th Congress (2025–2026) address this issue, each with a different approach.
The More Homes on the Market Act (H.R. 1340 / S. 3332)
Introduced in February 2025 by Rep. Jimmy Panetta (D-CA) and Rep. Mike Kelly (R-PA) — members of the House Ways and Means Committee — this bill would double the existing exclusion limits to $500,000 for single filers and $1 million for married couples filing jointly. It would also index those amounts annually to inflation going forward, so the thresholds would keep pace with the cost of living.
The House bill has attracted 94 co-sponsors — 58 Democrats and 36 Republicans — as of early 2026, according to Congress.gov tracking. A companion Senate bill (S. 3332) was introduced by Sen. John Cornyn (R-TX) and is backed by Sens. Michael Bennet (D-CO), Adam Schiff (D-CA), Mark Kelly (D-AZ), John Barrasso (R-WY), and Steve Daines (R-MT).
Both the House and Senate versions of this legislation have been referred to their respective tax-writing committees — the House Ways and Means Committee and the Senate Finance Committee — where they remain pending.
The No Tax on Home Sales Act (H.R. 4327)
Introduced in July 2025 by Rep. Marjorie Taylor Greene (R-GA), this bill would eliminate the federal capital gains tax on primary residence sales entirely, with no cap on the excluded gain. In July 2025, President Trump expressed interest in the concept, stating publicly that the administration was "thinking about no tax on capital gains on houses." The bill has fewer co-sponsors and faces broader questions about its revenue impact, as it would benefit a wider range of sellers, including those with very high-value homes. Policy analysts at the Budget Lab at Yale noted that the benefits of a full elimination would skew toward households with significantly higher net worth.
The Legislative Pathway: What to Watch
Neither bill has passed into law as of May 2026. The question of how — and whether — reform could advance depends on a few legislative variables that analysts and reporters at Roll Call, Tax Notes, and the Bipartisan Policy Center have been tracking closely.
Reconciliation
Republicans used a budget reconciliation process in 2025 to pass the "One Big Beautiful Bill Act" (P.L. 119-21). Discussion of a potential "Reconciliation 2.0" package has surfaced in early 2026, though its viability remains uncertain. As Rep. Panetta told Tax Notes in late 2025, a capital gains exclusion bill's bipartisan character could make it a viable addition to a reconciliation vehicle — noting that his prior work demonstrated how bills with broad cross-party support can be incorporated even into partisan packages.
A Year-End Tax Package
Another possibility, discussed in Roll Call and Tax Notes, is a bipartisan year-end tax bill — a vehicle that has been used in prior Congresses to move broadly supported provisions. The cross-party co-sponsorship of H.R. 1340 is seen as an asset in that scenario.
Executive Action
In March 2026, Senators Ted Cruz (R-TX) and Tim Scott (R-SC) sent a letter to Treasury Secretary Scott Bessent urging consideration of whether capital gains could be indexed to inflation through administrative action — without requiring a Congressional vote. Treasury has not publicly announced a decision on that request. The National Association of Realtors has also urged both the House Speaker and Senate Majority Leader to consider the More Homes on the Market Act, and trade groups submitted a letter to that effect in early March 2026.
The 2026 midterm elections in November add another layer of timing complexity. Roll Call has noted that the bipartisan support for the Cornyn Senate bill may reflect, in part, a shared interest among members in demonstrating action on housing affordability ahead of competitive races.
What Remains Unchanged — For Now
Until any of these bills is enacted, the current rules apply:
• The exclusion for single filers remains $250,000
• The exclusion for married couples filing jointly remains $500,000
• Gains above those thresholds are taxed at long-term capital gains rates (0%, 15%, or 20% depending on income), with an additional 3.8% net investment income tax for higher earners
• The home must have been your primary residence for at least two of the five years preceding the sale
• The exclusion can generally only be used once every 24 months
If legislation does pass and includes a retroactive effective date — as H.R. 1340's text currently specifies ("sales and exchanges after the date of enactment") — it would apply to sales completed after the bill is signed into law, not prior sales.
A Note on Planning
Tax law affecting real estate decisions is highly individual. The interaction of federal capital gains rules with state income taxes, depreciation recapture on rental properties, estate planning considerations, and personal financial circumstances makes this an area where consultation with a qualified CPA or tax advisor is essential before making significant decisions.
For those tracking this legislation, reliable public sources include Congress.gov (for bill text and co-sponsor counts), the Congressional Research Service report RL32978 (which provides historical context on the exclusion), and coverage in publications such as Tax Notes, Roll Call, and the Bipartisan Policy Center's analysis.
The core facts here are straightforward: a tax rule set in 1997 has not kept pace with nearly three decades of home price growth, and a meaningful number of lawmakers from both parties have concluded that updating it warrants serious attention. Whether and when that results in enacted law is something the 119th Congress — and the calendar — will determine.
Sources
Congress.gov (H.R. 1340, S. 3332 bill text and co-sponsor data); Congressional Research Service Report RL32978; National Association of Realtors 2025 analysis; Roll Call (December 3, 2025); Tax Notes (December 30, 2025); Bipartisan Policy Center; Forvis Mazars U.S. Tax Legislative Outlook (April 2026); CNBC (March 4, 2026).
