Boomers Selling Longtime Homes Would Get Tax Holiday on Their Profits Under New Bill

Baby boomers looking to sell their long-held homes would get a temporary reprieve from taxes on their profits under a new bill to create a three-year tax holiday.

Rep. Nicole Malliotakis' new "Nest Egg Protection Act," H.R. 9064, proposes raising the capital gains tax exclusion for people over 65 who sell their homes from 2027 through 2030. The act would raise that exclusion on profits of up to $1 million, double the current max, provided they're selling a home they've owned for at least 25 years.

It's an effort to encourage more seniors to downsize, while helping them avoid the major tax hit that would come because their homes have appreciated so much in value, said Malliotakis (R-New York).

The current capital gains tax scheme was set into place in 1997, and wasn’t tied to inflation. Sellers are allowed to exclude up to $250,000 if they’re single, or $500,000 if married and filing jointly, when they sell their home, with a few strings attached.

But because home prices have appreciated so much since then, many long-term homeowners now face a tax hit on their profits if they sell. The median home price has risen from $129,000 in 1997 to $419,300 today.

The bigger their profit on the sale, the higher the tax bill when they do sell. And the situation further complicates a market already facing a housing shortage of millions of units. Younger buyers are overwhelmingly pessimistic they'll ever afford homes.

And the problem is most pronounced in the quickest growing cities where homes are appreciating the fastest and home values are the highest, such as in California and New York.  

Proponents say lifting taxes would encourage more home sales

New York suburbs like Levittown were famously hubs for the post-World War II building boom. Builders completed homes costing $7,000 to $8,000, sometimes as fast as one every 16 minutes. Adjusted for inflation, that's $122,000 today.

But in Malliotakis' district, which includes Staten Island and parts of Brooklyn, the median home price is now over $700,000.

“Too many seniors on Staten Island and in Brooklyn who purchased their homes decades ago and built equity over a lifetime are now facing the possibility of a significant capital gains tax bill if they choose to sell or downsize,” she said. “My legislation would expand the capital gains tax exemption to provide meaningful relief and allow seniors to keep more of their hard-earned equity."

The bill, which is now in committee, hasn't attracted any co-sponsors yet. But it's garnered the support of the Staten Island Board of Realtors®, the Brooklyn Real Estate Board, and several real estate players.

"By reducing a major tax barrier to selling, this proposal could encourage more longtime homeowners to rightsize their housing and create opportunities for the next generation of homebuyers," Sandy Krueger, CEO of the Staten Island Board of Realtors, said in a statement.

More attention on capital gains

Democrats and Republicans alike appear to have an appetite to change the capital gains tax scheme. Several have put forth bills to change the status quo. Meanwhile, the National Association of Realtors and others are researching the problem.

This year, NAR estimated that 25.4 million homeowners stand to gain at least $250,000 in profit if they sell their homes, with prospective profits topping $500,000 for 8 million of them.

There have been a few ideas in Congress to alter the limit, but none has advanced so far. Rep. Jimmy Panetta, (D-California), has attracted 120 co-sponsors on a bill to double the exclusion for everyone—which would bring it to $500,000 for single filers and $1 million for couples. That bill would also tie the exclusion to inflation. 

Rep. John McGuire, (R-Virginia), drew several Republicans to a different bill that would let seniors exclude home sales to first-time homebuyers from capital gains.