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Amid the U.S. housing shortage, some lawmakers want to reduce capital gains taxes on home sales. But experts disagree on whether this idea could help tackle the country’s home affordability crisis.
Sens. Ted Cruz, R-Texas, and Tim Scott, R-S.C., this week sent a letter to Treasury Secretary Scott Bessent, urging him to use his executive authority to reduce capital gains taxes by indexing an asset’s “basis,” or purchase price, with inflation.
Under current law, investors pay capital gains tax on the difference between an asset’s basis and its sales price. But the lawmakers want the Treasury to index the basis to inflation to reflect its price in today’s dollars, according to the letter, which CNBC reviewed.
Cruz and Scott said the tax break could incentivize long-time property owners with significant equity to sell. The change would “increase the supply of homes available to young families seeking to purchase their first property,” the lawmakers wrote.
The U.S. housing supply gap — the difference between existing stock and homes needed — reached an estimated 4.03 million homes in 2025, Realtor.com reported on Tuesday. That’s up from 3.8 million in 2024.
Cruz and Scott aren’t the only lawmakers scrutinizing capital gains on home sales.
In 2025, bipartisan House and Senate lawmakers introduced the “More Homes on the Market Act,” which could double the current capital gains exemptions for primary home sales profits and adjust those figures annually for inflation. The House bill was referred to the Ways and Means Committee, where it remains.
If enacted as drafted, the exemptions would rise to $500,000 for single filers and $1 million for married couples filing jointly, up from $250,000 and $500,000, respectively. The $250,000 and $500,000 limits have been the same since 1997.
An outline released by the Republican Study Committee in January as part of a “Reconciliation 2.0” framework would go further by eliminating capital gains tax entirely on properties sold to first-time homebuyers and on sales of rental homes to tenants.
President Donald Trump in July expressed interest in the idea after former Rep. Marjorie Taylor Greene, R-Ga., introduced a separate proposal to end capital gains tax on primary home sales.
“If the Fed would lower the [interest] rates, we wouldn’t even have to do that,” he told reporters at the time. “But we are thinking about no tax on capital gains on houses.”
Who pays capital gains tax on home sales
An increasing number of property sellers are exceeding the capital gains exclusion limits, according to a 2025 report from the National Association of Realtors, which has advocated for reform.
The organization estimated that 29 million homeowners, or 34%, could exceed the $250,000 exemption for single filers, and 8 million, or 10%, could be above the $500,000 limit for married couples.
In 2022, homeowners with profits above the exemption were typically wealthier and with higher income, according to a 2025 analysis from The Budget Lab at Yale.
Those who exceed the limit pay up to 20% capital gains tax on excess profits, depending on their taxable income. Some higher earners are also subject to an extra 3.8% net investment income tax.
How tax reform could impact the housing market
While many experts say that housing affordability is a critical issue, there are mixed views on whether capital gains tax reform could be the solution.
In a letter to House Speaker Mike Johnson and Senate Majority Leader John Thune this week, dozens of conservative low-tax organizations — including the Market Institute, Center for a Free Economy, Americans for Tax Reform, among others — voiced support for the “More Homes on the Market Act.”
“That tax burden discourages home sales, tightens housing supply and makes it harder for millennial families to buy the family homes they need,” the activists wrote in a letter obtained by CNBC.
Separately, Adam Michel, director of tax policy studies at the Cato Institute, a libertarian think tank, said in a January report that expanding or creating new capital gains exclusions could “free up some housing stock.”
Other tax policy experts disagree.
Most senior households would see no benefit from proposals to expand the capital gains exemptions, according to a February report from Brookings, a nonprofit public policy organization. As a result, the policy would do little to change seller behavior, the report said.
“This is going to do next to nothing to solve the supply problem,” Howard Gleckman, a nonresident fellow at the Urban-Brookings Tax Policy Center, told CNBC.
“There are so many other reasons why older people don’t move from their homes,” said Gleckman, who also studies aging and long-term care policy. “The last thing that any of them are thinking about is taxes.”
