A bipartisan group of senators has presented a proposal to overhaul the capital gains tax code to spur more homeowners to sell.
Six senators — John Cornyn, Republican of Texas; Michael Bennet, Democrat of Colorado; Steve Daines, Republican of Montana; Adam Schiff, Democrat of California; John Barrasso, Republican of Wyoming, and Mark Kelly, Democrat of Arizona — want to update capital gains exclusions for home sellers for the first time in nearly 30 years.
The More Homes on the Market Act seeks to modify the thresholds for capital gains taxes, fees charged when an investment is sold, including jewelry, real estate and stocks. Currently, sellers are exempted from the tax at a maximum of $250,000 in gains for single filers and $500,000 for couples filing together. That's been the case since 1997.
If passed, the bill would increase the exclusion to $500,000 for single filers and $1 million for joint ones.
“This is an important piece of the puzzle to addressing housing affordability, updating our tax laws and ensuring more families in Colorado and across the country can live in homes that are right for them,” Bennet told Homes.com via email.
The bill comes at a time when Congress is focused on increasing housing inventory and affordability. In October, the Senate passed the Renewing Opportunity in the American Dream to Housing, or "ROAD," Act of 2025. The legislation includes dozens of housing-related initiatives, including boosts for transit-oriented developments, homebuyer assistance programs and modified lending standards that extend to manufactured housing. The bill is with the House.
Similarly, the House created its own housing-focused bill called the HOME Reform Act, a modification of the Home Investment Partnerships Program. It, too, focuses on streamlining the construction process and removing regulations. It passed the House and sits with the Senate.
The government shutdown delayed both the HOME Reform Act and ROAD Act. The shutdown lasted 43 days, stretching from the first day of October to mid-November.
Meanwhile, limited housing supply continues to weigh heavily on the country. A balanced market has four to five months of inventory, according to the American Enterprise Institute's definition, and only four of the approximately 60 most populated metropolitan areas are oversupplied; the rest are either balanced or short.
Potential effects of changing capital gains taxes
Bennet said if a buyer bought a house for $150,000 in 2000 and sold it today for $620,000, the capital gains tax would be about $36,000 under the current law.
“Much like the rest of the country, Colorado is facing a housing crisis. I hear from families across the state who worry they won't be able to raise their family in the communities where they work or grew up," Bennet said.
"I also hear from seniors who want to downsize their homes, but are worried about the potential capital gains taxes if they try to put their homes on the market. The More Homes on the Market Act updates these rules to reflect today's housing reality.”
But some tax experts doubt the potential effects of the bill, calling it wishful thinking.
“It’s not going to achieve what they want, and it’s going to turn into a windfall for a relatively small number of very rich people," Howard Gleckman, a nonresident fellow at the Urban-Brookings Tax Policy Center, told Homes.com.
Research from the Yale Budget Lab found that removing capital gains taxes on primary residences would benefit only 10% of homeowner households, mainly those who are older and have significantly higher incomes than the average household.
In 2022, people who sold their homes and made gains above the tax exemption had an average net worth of $5.7 million. Those whose gains were below the exemption averaged just over $1 million. Renters, by comparison, had about $150,000 on average.
Gleckman also questioned the bill's underlying assumptions: “I think they misunderstand why older adults are reluctant to sell their home. I don’t think that capital gains taxes are a reason, or at least the primary reason."
"It’s about having an appropriate place to move to," he added. "Emotionally, it’s very difficult to leave a home where you may have raised your kids.”
For the small group who would benefit, the tax savings could be substantial. According to Yale Budget Lab data, the typical house in this group was worth about $1.4 million in 2022, and the profit on the sale was around $430,000. With the highest tax rate, that means a savings of roughly $100,000 — money that would have otherwise gone to the Internal Revenue Service.
“Every time you give somebody a tax cut, you’re increasing the deficit and increasing the debt, which is going to raise interest rates and fight against the very goals that the senators have," Gleckman said.
Regardless, the More Homes on the Market Act faces a long journey ahead. It needs to be advanced by a Senate committee, face deliberations and a vote by the entire Senate, and, if it passes, go to the House for more of the same.