There’s a push to cut capital gains taxes on home sales — how it could impact the housing market

Sen. Ted Cruz, R-Texas, and Sen. Tim Scott, R-S.C., this week sent a letter to Treasury Secretary Scott Bessent urging him to use executive authority to reduce capital gains taxes on home sales by indexing an asset's basis with inflation, as the U.S. housing supply gap reached an estimated 4.03 million homes in 2025. The lawmakers believe this tax reform would incentivize long-time property owners with significant equity to sell their homes, thereby increasing the supply available to young families seeking to purchase their first property. Under current law, investors pay capital gains tax on the difference between an asset's purchase price and its sales price, but the proposed change would adjust the basis to reflect inflation in today's dollars. The push from Cruz and Scott represents part of a broader legislative effort to address the nation's housing affordability crisis. In 2025, bipartisan House and Senate lawmakers introduced the "More Homes on the Market Act," which would double the current capital gains exemptions for primary home sales profits and adjust those figures annually for inflation. If enacted, the exemptions would rise to $500,000 for single filers and $1 million for married couples filing jointly, up from the $250,000 and $500,000 limits that have remained unchanged since 1997. Additionally, an outline released by the Republican Study Committee would go further by eliminating capital gains tax entirely on properties sold to first-time homebuyers and on sales of rental homes to tenants. President Donald Trump has also expressed interest in the idea, stating in July that his administration is "thinking about no tax on capital gains on houses." The debate comes as an increasing number of property sellers are exceeding the capital gains exclusion limits, with the National Association of Realtors estimating that 29 million homeowners, or 34%, could exceed the $250,000 exemption for single filers. However, experts remain divided on whether such tax reforms would effectively address the housing supply problem, with some arguing it would free up housing stock while others contend it would do little to change seller behavior among older homeowners.