Are changes coming to the Capital Gains Tax Exemption for Real Estate?

Owner Occupied Homes might get a huge bump up in the Capital Gains Tax Exemption. The first in change in almost 30 years.

You are probably aware that if you own a home as your primary residence for 2 out of the last 5 years you would get a $250,000 tax exemption for single tax filers and $500,000 for married tax filers. This was made law back in the early 90s and since then, the dollar amounts haven’t changed. Fingers crossed it just might change, and it will open the doors for buyers to more homes since many sellers have held off from selling because of the hefty taxes they will have to pay.

Here is the scoop. There’s a bill pending in the US House of Representatives, HR 1340, that will amend a nearly 30-year old law about capital gains tax exclusions for real estate sales of your primary residence.  That may sound a little complicated, so let’s break it down: A law passed in 1997 allowed homeowners to exclude up to $250,000 in capital gains tax for single filers or $500,000 for married couples filing jointly.  In other words, for single filers, if your house gained more than $250,000 in value since you purchased it, you would owe capital gains tax when it sold. The requirement was that at the time of sale you had to have occupied it for 2 of the last 5 years. Such as living in the home as your primary residence and then selling it at the 2 year mark, or perhaps you rented it out and moved in later, or vice-versa.

According to a recent study by the National Association of Realtors, 29 million homeowners may have already surpassed the $250,000 cap and 8 million may have surpassed the $500,000 cap.  As real estate grows in value, the number of homeowners facing tax penalties only increases, especially in states like California and Massachusetts, where property values are already high.  Within the next ten years, 20 states may have over 40% of property owners owing capital gains taxes.

That means owners are unwilling to sell because they’ll lose much of their home value to taxes.  Homeowners are penalized for their property investment.  The good news is that there’s the previously mentioned HR 1340 More Homes on the Market Act that YOU can have an influence on.  That bill that will…

                  … Double the capital gains tax exclusion from $250,000 to $500,000 for individuals and from $500,000 to $1 million for married filers

                  … Automatically adjust those capital gains taxes to reflect any future inflation

                  … Free up millions of homes that are currently “stuck” due to the 30-year-old capital gains law.

How can you make a difference?  Call or email your local representatives and encourage them to bring HR 1340 to a vote as soon as possible!  And keep up to date on the news regarding this important bill – don’t let it disappear.

If this bill passes there are provisions that it may get slighting increased over time. I am thrilled to hear about this good news. Have any questions on this post. Send us an email or DM.