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With the U.S. housing shortage, some lawmakers want to lower capital gains taxes on home sales. But experts are divided on whether the idea will help address the country’s housing affordability crisis.
Sens. Ted Cruz (R-Texas) and Tim Scott (R-S.C.) sent a letter to Treasury Secretary Scott Bessent this week asking him to use enforcement powers to reduce capital gains taxes by indexing asset “bases,” or purchase prices, to inflation.
Under current law, investors pay capital gains tax on the difference between the asset’s base value and sales price. But according to a letter seen by CNBC, lawmakers are asking the Treasury Department to index the standards to inflation to reflect prices in today’s dollars.
Cruz and Scott said the tax break could encourage long-time property owners with large stakes to sell. The changes will “increase the supply of housing available to young families looking to purchase their first property,” the councilors wrote.
The U.S. housing supply gap (the difference between existing inventory and needed housing) is estimated to reach 4.03 million units by 2025, Realtor.com reported Tuesday. This is up from 3.8 million people in 2024.
Cruz and Scott are not the only lawmakers scrutinizing capital gains from home sales.
In 2025, a bipartisan group of members of the House and Senate would introduce the Bringing More Homes to Market Act, which would double the current capital gains exemption on the main proceeds of a home sale and potentially adjust that number annually for inflation. The House bill was referred to the Ways and Means Committee, where it remains.
If enacted as drafted, the exemption amount 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 remained the same since 1997.
An outline released by the Republican Study Group in January as part of the “Reconciliation 2.0” framework went further by completely eliminating capital gains taxes on properties sold to first-time homebuyers and homes rented to tenants.
President Donald Trump expressed interest in the idea in July after former Rep. Marjorie Taylor Greene (R-Ga.) introduced a separate proposal that would eliminate capital gains taxes on primary home sales.
“If the Fed lowered[interest rates]we wouldn’t even have to do it,” he told reporters at the time. “But we are thinking about not taxing capital gains on housing.”
Who pays capital gains tax when selling a home?
A 2025 report from the National Association of Realtors, which advocates for reform, says more real estate sellers are exceeding capital gains exclusion limits.
The organization estimates that 29 million (34%) homeowners could exceed the $250,000 exemption limit for singles, and 8 million (10%) could exceed the $500,000 exemption limit for married couples.
According to a 2025 analysis from Yale University’s Budget Lab, homeowners who earned more than their exemption amount in 2022 were generally wealthier and had higher incomes.
Those who exceed this limit pay up to 20% capital gains tax on excess profits, depending on their taxable income. Certain high earners are subject to an additional 3.8% net investment income tax.
Impact of tax reform on the housing market
Many experts say housing affordability is a key issue, but opinions differ on whether capital gains tax reform is the answer.
In a letter to House Speaker Mike Johnson and Senate Majority Leader John Thune this week, dozens of conservative low-tax groups, including the Market Institute, the Center for a Free Economy, Americans for Tax Reform, and others, expressed support for the More Housing on the Market Act.
“That tax burden hinders home sales, tightens the supply of housing, and makes it harder for millennials to buy the homes they need,” the activists said in a letter obtained by CNBC.
Separately, Adam Michel, director of tax research 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 experts disagree.
A report released in February by the nonprofit public policy organization Brookings found that most elderly households would not benefit from the proposed expansion of the capital gains deduction. As a result, the policy does little to change seller behavior, the report says.
“This does little to solve the supply problem,” Howard Gleckman, a nonresident fellow at the Urban-Brookings Tax Policy Center, told CNBC.
“There are many other reasons why older people don’t move out of their homes,” says Gleckman, who also studies aging and long-term care policy. “None of them ever think about taxes.”
