{"id":186684,"date":"2026-01-30T11:22:18","date_gmt":"2026-01-30T18:22:18","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=186684"},"modified":"2026-01-30T11:22:53","modified_gmt":"2026-01-30T18:22:53","slug":"rewritten-capital-gains-rules-could-unlock-trillions-in-home-equity","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/rewritten-capital-gains-rules-could-unlock-trillions-in-home-equity","title":{"rendered":"This Major Change in Capital Gains Rules Could Make a Huge Difference For Investors"},"content":{"rendered":"\n

Real estate investors and their accountants have turned <\/span>tax avoidance<\/span><\/a> into a fine art, with a sophisticated panoply of techniques designed to keep Uncle Sam\u2019s cloying hands at bay. However, in a plot twist, presented in the form of another of President Donald Trump\u2019s freewheeling, shoot-from-the-hip ideas to increase affordability, Uncle Sam might be changing roles\u2014from pillager to provider\u2014by eliminating <\/span>capital gains tax<\/span><\/a> on the sale of single-family houses. <\/span><\/p>\n\n\n\n

For small investors sitting on a pile of <\/span>equity<\/span><\/a> in their personal residence, <\/span>a potential tax-free windfall could be deployed<\/span> for investments.<\/span><\/p>\n\n\n\n

Why a Higher Capital Gains Exclusion Matters<\/span><\/h2>\n\n\n\n

The hits keep on coming because, for once, amending the capital gains tax law has received bipartisan support.<\/span><\/p>\n\n\n\n

Following a massive increase in house prices since the COVID-19 pandemic, <\/span>as of last March,<\/span> homeowners <\/span>have<\/span> a mighty $34.7 trillion in home equity, according to<\/span> Realtor.com<\/span><\/a>.<\/span> Current federal law allows homeowners to be forgiven capital gains taxes on $250,000 in profit from the sale of a single-family home if they file separately, and $500,000 if they are married and file their taxes jointly, so long as they have lived in the property for two of the previous five years. However, this law, with those numbers, was set as part of the Taxpayer Relief Act of 1997 and has never been adjusted for inflation, even as home prices have soared.<\/span><\/p>\n\n\n\n

The discrepancy has left many homeowners house-rich but cash-poor, especially retirees who have lived in their homes for a long time. As their equity has increased, <\/span>their fear has been<\/span> that selling would expose them to a large capital gains tax bill.<\/span><\/p>\n\n\n\n

This<\/span> is especially true in affluent or rapidly appreciating areas.<\/span> A 2025 analysis by the National Association of Realtors<\/span><\/a> found that 29 million homeowners\u2014about 34% of all owner-occupied households\u2014now risk surpassing the $250,000 gain threshold as individuals, while around 8 million, or 10% of homeowners, could exceed the $500,000 cap as married couples filing jointly.  <\/span><\/p>\n\n\n\n

Trump surprised many people when he was questioned in the<\/span> Oval Office on July 22, 2025<\/span><\/a>, by saying that ending all capital gains taxes on home sales was in the cards, instead of just increasing the limits, telling reporters, \u201cWe\u2019re thinking about that,\u201d when questioned. \u201cIf the Fed would lower the [interest] rates, we wouldn\u2019t even have to do that,\u201d the president added. \u201cBut we are thinking about no tax on capital gains on houses.\u201d<\/span><\/p>\n\n\n\n

Trump\u2019s comments came two weeks after former Trump acolyte Rep. Marjorie Taylor Greene, R-Ga., introduced the<\/span> No Tax on Home Sales Act<\/span><\/a> to eliminate capital gains taxes on primary home sales.<\/span><\/p>\n\n\n\n

New Proposals in Washington in 2026<\/span><\/h2>\n\n\n\n

The argument for revising capital gains limits picked up steam toward the end of 2025<\/span>, and over<\/span> the last few weeks,<\/span> Realtor.com<\/span><\/a> reported that, during a National Association of Realtors (NAR) advocacy week in Washington, D.C., government officials said<\/span> revisions to the capital gains limits<\/span><\/a> were underway.<\/span><\/p>\n\n\n\n

“Based on our best information and insight, there would be a significant increase in the number of homes that would be put up for sale [if <\/span>the capital gains tax were reformed<\/span>], but it would vary quite a bit between local markets,” Evan Liddiard<\/span>,<\/span><\/strong> NAR\u2019s director of federal taxation, said, citing studies commissioned by the group.<\/span><\/p>\n\n\n\n

\u201cRoughly a third of all homes that could be on the market could <\/span>be subjected<\/span> to that tax, and it’s locking people in,” Shannon McGahn, NAR’s chief advocacy officer, said at the event. “It’s great to see that there’s bipartisan support.”<\/span><\/p>\n\n\n\n

Frank Cassidy, commissioner of the Federal Housing Administration (FHA), added that changing the law, a decision that needs to be made by Congress, could bring far-reaching changes to the housing market.<\/span><\/p>\n\n\n\n

\u201cThe more transactions we can have going on in the private sector, and the more we can incentivize the supply side, is what will really have long-term effects,” said Cassidy. The FHA oversees the Department of Housing and Urban Development’s $2 trillion in mortgage insurance programs.<\/span><\/p>\n\n\n\n

Realistic Exclusion Limits<\/span><\/h2>\n\n\n\n

Rather than ending capital gains taxes on personal residences entirely\u2014as Trump touted in the summer\u2014which seems unrealistic, Rep. Jimmy Panetta, a California Democrat on the House Ways and Means Committee, suggested, way back in September 2022, that the limits <\/span>simply<\/span> be doubled as part of his <\/span>More Homes on the Market Act<\/span><\/a>\u2014$500,000 for single sellers of personal homes, and $1 million for married, filing jointly sellers.<\/span> The bill<\/span><\/a> has stalled twice since its introduction, but has recently gained traction, with 94 cosponsors\u201458 Democrats and 36 Republicans.<\/span><\/p>\n\n\n\n

“This isn’t just a coastal issue anymore,” Panetta said of housing inventory strain. “This isn’t just a blue state or blue congressional district issue. <\/span>This<\/span> is a red issue. It’s a center-of-America issue, and I think that’s why we’re getting more and more momentum.\u201d<\/span><\/p>\n\n\n\n

A Seniors-Only Exclusion<\/span><\/h2>\n\n\n\n

Despite the increased number of homes on the <\/span>market<\/span> it could engender<\/span>, changing the capital gains limits could still be a big revenue hit. That\u2019s why Arthur Gailes, a research fellow at the American Enterprise Institute, estimated that 4 million to 9 million seniors could benefit from capital gain adjustments.<\/span><\/p>\n\n\n\n

“It’s not an overwhelming thing that’s going to solve grand problems, but it would break up a logjam in the market, and that could be helpful,” Jim Parrott, a nonresident fellow at the Urban Institute, told Realtor.com. “And <\/span>it’s targeted<\/span> enough, it wouldn’t be that expensive.”<\/span><\/p>\n\n\n\n

Final Thoughts: How Real Estate Investors Could Benefit From Changes to Capital Gains Exclusion Limits<\/span><\/h2>\n\n\n\n

When $1 million of tax-free money arrives on your balance sheet, you have options. Should Panetta\u2019s bill pass, that is the potential amount of money some single-family homeowners could be sitting on in areas that have <\/span>appreciated<\/span><\/a> substantially since they first purchased their homes. <\/span><\/p>\n\n\n\n

Here are a few real estate investment strategies equity-rich homeowners could employ.<\/span><\/p>\n\n\n\n

Sell, downsize, and recycle the money to buy <\/span>rentals<\/span><\/h3>\n\n\n\n

This<\/span> is <\/span>perhaps<\/span> one of<\/span> the most obvious <\/span>strategies<\/span>.<\/span> Assuming the homeowner has the appetite to be a landlord, using the tax-free proceeds from the sale of a personal home to downsize or rent and redeploying the money for a <\/span>down payment<\/span><\/a> on <\/span>cash-flowing<\/span><\/a> rentals could be a great way to build an equity-rich portfolio.<\/span><\/p>\n\n\n\n

Sell and use the proceeds to move into a fixer-upper personal residence. Rinse and repeat. <\/span><\/h3>\n\n\n\n

If landlording isn\u2019t your cup of tea but you don\u2019t mind living around construction, this is a safe way to build tax-free equity. <\/span>Essentially, it means <\/span>moving into a <\/span>flip<\/span><\/a> for two years while you renovate <\/span>and<\/span> then <\/span>put<\/span> it back on the market to realize the capital tax exclusion.<\/span> It\u2019s a good strategy if you don\u2019t mind moving often and are handy, so you can do some of the work yourself and save on construction costs.<\/span><\/p>\n\n\n\n

Combine downsizing with upgrading your existing portfolio through ADUs and renovations. <\/span><\/h3>\n\n\n\n

If you\u2019re happy with your existing portfolio and don\u2019t want to add more houses but want to maximize what you have, using the surplus cash to add <\/span>ADUs<\/span><\/a>, convert basements and attics, and perform overall upgrades could help you generate more income without buying more units.<\/span><\/p>\n\n\n\n

Use tax-free cash to pay off mortgages on rentals. <\/span><\/h3>\n\n\n\n

Selling and downsizing and paying off the mortgages on your existing rentals could usher in retirement sooner than you thought possible.<\/span><\/p>\n\n\n\n

Turn today\u2019s primary home into tomorrow\u2019s rental, and sell strategically. <\/span><\/h3>\n\n\n\n

As long as you have lived in your rental for <\/span>two<\/span> years, you can rent it for a further <\/span>three<\/span> years (or any combination that allows <\/span>two<\/span> of the <\/span>five<\/span> years for owner-occupancy) and sell strategically.<\/span> This<\/span> allows you to gain rental income and realize appreciation while downsizing.<\/span><\/p>\n\n\n\n

Sell and move into a small multifamily with an FHA mortgage. <\/span><\/h3>\n\n\n\n

Selling your primary single-family residence and buying a two-to-four-family home with an FHA mortgage allows you to take advantage of FHA\u2019s low down payment programs and live mortgage-free in a small <\/span>multifamily<\/span><\/a>, as your tenants’ rents will cover your mortgage, while possibly still having some cash on the side for repairs or emergencies.<\/span><\/p>\n\n\n\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

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