For nearly three decades, one key piece of tax policy has quietly fallen behind the times—and it’s now costing millions of homeowners across the country thousands of dollars when they sell their homes.

Through a 28-year lens, it’s clear: tax laws simply haven’t kept pace with the rapid rise in home values. The result? Many long-term homeowners are facing unexpected tax bills and choosing not to sell, tightening inventory for everyone else.

A Policy Stuck in the Past

Since 1997, the capital gains exclusion for the sale of a primary residence has remained unchanged:

• $250,000 for single filers

• $500,000 for married couples filing jointly

At the time, the average U.S. home cost about $145,000. Fast forward to today, and that same home now sells for around $422,600—an increase of roughly 191%, according to U.S. Census data and the Federal Reserve.

Yet, despite skyrocketing home values, the tax exclusion cap hasn’t moved an inch.

The “Stay-Put Penalty”

Economists have dubbed this phenomenon the “Stay-Put Penalty.”

Because tax-free profit on a home sale is capped, many longtime homeowners are hesitant to sell—even when they’ve built significant equity. A 2024 National Association of REALTORS® (NAR) study found that:

• About 34% of homeowners (nearly 29 million people) have already surpassed the $250,000 single-filer exclusion.

• Over 10% of homeowners have exceeded the $500,000 joint-filer cap.

In other words, the longer you stay, the more likely you are to owe taxes on your appreciation—penalizing success and discouraging mobility in the housing market.

A Ripple Effect on the Market

The impact stretches far beyond individual homeowners. In high-cost states like California, Massachusetts, and New York, projections show that by 2035, more than 40% of homeowners in 20 states could face capital gains taxes just for having built equity through homeownership.

This creates a ripple effect:

• Fewer existing homes are listed for sale.

• Inventory remains historically tight.

• Competition intensifies, keeping prices high.

• First-time buyers and growing families struggle to enter or move up in the market.

In short, the policy intended to encourage homeownership is now stifling it.

The Case for Change

Even as tax limits lag behind, real estate remains Americans’ favorite investment. A 2024 Gallup poll showed that Americans ranked real estate as the best long-term investment for the 11th consecutive year, ahead of stocks, gold, and bonds.

Recognizing this, the National Association of REALTORS® is championing the More Homes on the Market Act, a bipartisan proposal designed to modernize outdated tax laws and give homeowners more flexibility.

The Act would:

• Double the capital gains exclusion to $500,000 for individuals and $1 million for married couples.

• Index the exclusion to inflation, ensuring it keeps pace with market growth.

• Encourage more homeowners to sell, increasing available housing inventory.

Why It Matters

Homeownership should be a pathway to financial security—not a penalty for success. Allowing equity to grow, only to tax it disproportionately, runs counter to the very principles that made homeownership the cornerstone of the American Dream.

By updating these outdated tax limits, we can:

• Reward responsible, long-term homeowners.

• Unlock desperately needed housing supply.

• Create opportunities for new buyers and growing families.

It’s time for a tax code that rewards—not restricts—the promise of homeownership.

Learn More

For a deeper dive into this topic, download Homeowners Tax Guide and IRS Publication #523: Selling Your Home.