Hidden “Home Equity Tax” Could Be Rewritten: What It Means for Homeowners

A tax rule that hasn’t been updated since 1997 is catching millions of homeowners in what some are calling a “hidden home equity tax.”

Here’s the problem: homeowners can exclude up to $250,000 (single) or $500,000 (married) in capital gains when selling a primary residence. But after nearly three decades of rising home prices, those limits no longer reflect today’s housing market.

• 1 in 3 sellers already risks paying capital gains tax when selling.

• By 2030, more than half of all homeowners could be affected.

• Retirees and longtime owners are hit hardest, sometimes paying five-figure tax bills on so-called “phantom gains”—profits inflated by decades of housing price growth and inflation.

The 3 Proposals on the Table

Lawmakers and policy groups are debating how to modernize the rules:

1. Eliminate the tax entirely on primary residence sales (proposed by Rep. Marjorie Taylor Greene, supported by former President Donald Trump).

2. Double the current exclusion limits and index them to inflation going forward (the bipartisan More Homes on the Market Act).

3. Index capital gains to inflation only, so homeowners pay taxes only on real appreciation, not inflation-driven price jumps.

Why It Matters

Outdated tax limits discourage many older homeowners from selling, which keeps them in homes that no longer fit their needs—and keeps much-needed housing inventory off the market. Updating the rule could free up supply, but each proposal raises tough questions about fairness, cost, and who would benefit most.