More than one in four homeowners stand to benefit if a plan to exempt house sales from the capital gain tax makes its way to President Trump’s desk. But the change would be geographically uneven at best, with sellers in some places benefitting far more than those in others.
According to an analysis by Redfin, now part of Rocket Companies, the typical taxpayer has realized appreciation of $144,543 since they purchased their property. So if they sold the home today, they would not have to pay the capital gains tax, which currently kicks in when the gain is more than $250,000 for single taxpayers and $500,000 for couples filing jointly.
But President Trump and some lawmakers have talked about raising the capital gains tax ceiling or eliminating it altogether for the sale of primary residences, which would change the dynamics completely and cross off one reason some owners have refused to put their homes on the market.
“A lot of baby boomers say they never plan to sell their homes. But that mindset could shift if capital gains are taken off the table,” says Redfin Chief Economist Daryl Fairweather. “With the financial barrier removed, more may decide to sell and either downsize or relocate, potentially freeing up housing inventory and putting downward pressure on home prices.”
That wouldn’t help the bottom rung of the housing ladder — at least not directly — because these houses are not starter homes. But because it would allow current owners to move up a step or two, it would free up their houses for purchase.
According to Redfin, almost 26% of houses have gained at least $250,000 in value since the last time they were purchased, and 8% have gained more than $500,000. But the biggest beneficiaries of the change are homeowners who reside in states where home prices are high and have increased quickly.
“Nationwide, it would disproportionately benefit wealthier homeowners from coastal states,” says Fairweather. “Some states, especially in the South and Midwest, would see far less impact.”
California, Hawaii, and Massachusetts have the highest share of homeowners who stand to benefit if the tax is scrapped, Redfin reports. Mississippi, North Dakota, and Iowa have the smallest share.
Currently, sellers who lived in their homes for at least two of the past five years can exclude up to $250,000 in capital gains from their taxable income as a single filer, or up to $500,000 as a couple filing jointly. Capital gains tax is paid at a rate of 0%, 15%, or 20%, depending on income, with most people paying no more than 15%, according to the IRS.
Of the houses that have increased at least $250,000 in value, the median gain is $384,606, representing a potential tax liability of $20,104, according to the Redfin report. For homes that have gained at least $500,000 in value, the median gain is $712,986, leaving a potential tax liability of $31,948. For its analysis, the real estate brokerage used the 15% rate.
In California, the median home value is $766,896 and the typical capital gain of all homes is $332,659. Almost two-thirds of all houses in the Golden State have gained at least $250,000 since they were last sold; that’s the highest share of any state. One in three have gained more than $500,000.
Hawaii has a slightly lower share of homes that have gained more than $250,000 in value (61%), but a slightly higher share of homes that have gained $500,000 (34.6%) and a higher overall median capital gain ($338,346).
Massachusetts (58.4%), Washington (54.1%), and New Jersey (52.2%) round out the top five states, with the highest share of homes that have gained at least $250,000 in value since they were last sold.
On the flip side, Mississippi, North Dakota, and Iowa have the lowest share of homeowners who stand to benefit if capital gains tax is eliminated. Oklahoma and Wyoming round out the five states with the lowest share of homes that have gained enough value to trigger the capital gains tax.
In Mississippi, where the median home value is $254,319, only 1.2% of homes have gained $250,000 in value since they were last sold, and just 0.1% have gained $500,000. Put another way, only one out of every 100 Mississippi homes has gained enough value to cross the capital gains tax threshold for single filers, and virtually no homes have crossed the threshold for couples.
On a metropolitan area basis, the six that would benefit the most are all in California. But Detroit has the lowest share: just 5.1% of the houses there have gained $250,000 in value since they were last sold, with 0.4% having gained $500,000.
The Redfin report also breaks down the figures by property type, showing that while the share of single-family houses that have gained $250,000 in value is at 28%, the share of townhouses that have reached that benchmark is at 15%, and the share of condominiums and cooperatives is 13.6%.
The analysis comes with several caveats. For one thing, it’s not possible to accurately predict how homeowners will file their taxes. Also, the study does not distinguish between owner and renter-occupied homes, nor does it account for how home improvement costs and other offsets can potentially reduce an owner’s capital gains tax burden.
