Nearly 30-Year-Old Capital Gains Tax Exemption Rules Blamed for US Housing Shortage

The Epoch Times ^ | 6/8/2025 | Mary Prenon

[E. Pluribus Unum]

Many homeowners avoid selling because of high capital gains taxes, prompting real estate professionals to call for changes.

With median home prices exceeding $1 million in many U.S. housing markets, some real estate professionals are drawing attention to a 28-year-old capital gains tax law, citing it as one factor contributing to the nationwide housing shortage.

A recent report from Realtor.com shows that California is home to 8 of the 10 most expensive housing markets in the United States. San Jose tops the list with a median sales price of $2.02 million, followed by Anaheim and San Francisco at $1.45 million and $1.32 million, respectively.

Ken DeLeon, founder of DeLeon Realty in Palo Alto, told The Epoch Times that some communities in the San Francisco Bay Area have experienced skyrocketing home prices, which have jumped 667 percent since 1997—the year the Taxpayer Relief Act was signed into law, allowing married homeowners to exclude up to $500,000 in capital gains from the sale of their primary residence, and $250,000 for single homeowners.

“This outdated capital gains law has resulted in an artificially-created housing shortage,” DeLeon said. “A lot of older people who have lived in their homes for 30 years or more want to sell, but the value of those homes has tripled or quadrupled now. Some of these sellers could now be facing capital gains taxes of over $1 million.”

According to a HUD report, the median cost of a single-family home in 1997 was $143,000, compared with $414,000 in April 2025, as reported by the National Association of Realtors.

With the combined federal and state capital gains tax rate now at 37.1 percent in California, potential sellers seeking to avoid elevated tax hikes are choosing instead to remain in their current properties.

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TOPICS: Government
KEYWORDS:

[yldstrk]

Fix it now.

[ChildOfThe60s]

My income dropped 20% last year but my property taxes went up 43%, because according to the local government, I am now 43% richer with LESS money.

Unrealized inflationary “gains”. A politician’s wet dream

[MSF BU]

The expectation was that “empty nesters” would sell and move on. Some have, many have not however and many people in their seventies and eighties happily live in the homes they raised children in, as is their right. There is no housing shortage really, just a mismatch between expectations and reality. As those born in the twenties, thirties & forties pass on, there will be an avalanche of housing coming on the market.

[cornfedcowboy]

The argument of the author is spot on. Very true!

[BradtotheBone]

The $250,000/$500,000 home sale tax exclusion - If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse. Publication 523, Selling Your Home provides rules and worksheets. Topic no. 409 covers general capital gain and loss information.

[9YearLurker]

We screwed up by offering more than a modest deduction for mortgages. But instead we have subsidized overinvestment in individual houses. I’d say we should do something to bring the cost of housing down, but I think that something should be booting 40 million illegals out of here.

[dfwgator]

The problem is that the “Fixer-Upper” no longer exists.

If a neighborhood has cheap houses, it will be crime-ridden.

[TexasFreeper2009]

I 100% agree. This is exactly the reason I don’t sell. I have about 8 million tied up in my home. I don’t need a house this large anymore, but I sure as hell am not selling and giving 50% to the government. When I can simply hold on to it and give it tax free to my kids when the basis resets upon by death.

[Sequoyah101]

Oh no. That is impossible. It has to be carefully deliberated in the hallowed halls of congress. Just like the change to permanent DST suggested many times, desired by most Americans and offered as a bill by Rubio. Just not enough time to discuss it you know. Just like extending Trump’s tax cuts and leaving them in place instead of changing the tax laws with every administration.

Nope, can’t happen. The unites states is busted. It is now called the Distressed States of Amerika.

[PAR35]

Do they want it taxed as ordinary income? The calculations start with a $500,000 exemption on the gain.

So, a couple buys a house for $500,000, sells for $1 million, taxible gain is zero.

[E. Pluribus Unum]

So, a couple buys a house for $500,000, sells for $1 million, taxible gain is zero.

A lot of Californians bought their houses for $30,000 thirty or forty years ago and today they are worth millions because of the property upon which they sit.

[MSF BU]

It depends what your definition is of a distressed house is. Oil spill? Termites? Fire damage? Extensive dry rot? Condemned? A good builder can make a fortune with these often, but you need to know what you are doing.

[rbg81]

A lot of Californians bought their houses for $30,000 thirty or forty years ago and today they are worth millions because of the property upon which they sit.

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It must have been a lot earlier than that. I remember looking at So Cal properties in 1983. Even then, you could not touch a decent house for less than $250K.

[Harmless Teddy Bear]

It is a part of the problem.

The other problem is the lack of two bedroom/two bath, single story, elderly friendly housing.

Most retirees understand that they are fine NOW but ten years down the road one of them could be in a wheelchair and would like a house with wide doors and hallways.

A small yard is preferred not to big but enough that they can have some flowers, a small garden and a place for the dog.

But those kind of houses are not being built.

[Organic Panic]

And the effect of so many Airbnb houses?

AND the FACT that illegal aliens are put up free of charge in rental properties?

[PAR35]

Well, the ones that did sell moved to Texas and ran up the price of housing here.

[glorgau]

No, no, no, no. You get the money, you can pay the tax.

Or try to do a 1031 exchange since people seem to think their residence is some kind of investment.

[mfish13]

If you pay 1 Million in capital gains in taxes, you are putting 4 Million Dollars in your pocket. The Dems want to increase capital gains .

[mfish13]

Capital gains as far as I know is 20%. That would be 1.6 Million taxes. 6.2 Million in your pocket. Consult your accountant/Tax expert.