Looking for Midterm Boosts, Trump Floats Capital Gains Tax Cuts. Should Deed Holders Tune In?

Trump officials are floating tax-break ideas in the lead-up to the midterm elections. One recently mentioned proposal: bigger capital gains exemptions for deed holders who decide to sell their homes.

Under current law, the Internal Revenue Code’s Section 121 shields up to $250K of profits for single filers and $500,000 for married couples filing jointly. The idea is to let people keep more than that in untaxable profits.

This is not a new concept. Marjorie Taylor Greene, for one, introduced a law to simply end capital gains tax on sales of primary homes. Congress could pass that law if it agrees.

So, is there anything deed holders should watch as midterm promises take shape?

If the Tax Break Happens, It Won’t Happen This Year

Modifying the home sale capital gains exclusion involves the Internal Revenue Code. Presidents and political candidates can’t change the Code. Changing its content is up to Congress.

With few working days left, that’s unlikely to happen this year. The conservative Washington Examiner came right out and asked. Reporter Zach Halaschak asked House Ways and Means Committee chair Jason Smith if the committee could make it happen by Election Day.

Smith said some nice things about the idea and said it could be something Congress deals with next year.

Even if it could be done by the midterm elections, should it be done? Promising tax cuts at this time—without also cutting federal spending—just isn’t the energy U.S. voters need. Voters have a heightened awareness of our staggering federal debt, which is a pain to deed holders and everybody else. Where is a serious plan to address the debt? 

If the Tax Break Happens, It Will Help the Wealthier Deed Holders

Capital gains are the profits on a taxpayer’s home sale. Specifically, capital gains equal the sale price, minus the taxpayer’s original purchase price, closing costs, and investments in property improvements. In short, how much money can you sell your home for, over and above what you paid for it? The profit becomes your capital gains.   

The more expensive the home, the bigger this issue is. For most people today, it isn’t an issue at all.

As the current tax code stands, a taxpayer who has held the deed and lived in the home as a primary residence for at least two of the five years prior to closing day may exclude $250K of sale profits from tax, per person.Under the current law, those who make under $250K in profits when selling do not have to pay tax on capital gains.

Where home sale profits add up to more than $250,000 per seller, the seller or sellers owe capital gains tax. They then check the tax rate for their income bracket to find out how much to send to the IRS to account for the capital gains.

If the wealthier taxpayers are relieved of their capital gains tax, this does nothing to help the average deed holder.

And where are those high-value homes located? Protecting the wealthier sellers’ profits won’t free up many homes in places where most hopeful buyers are looking.

Have you inherited a home? You’ll benefit from special tax rules if you inherited the real estate you decide to sell.

Bills Are Already in the Pipeline to Change Capital Gains Tax

In any case, the idea to cut capital gains tax is already being hashed out by lawmakers. As our regular readers know, multiple pending bills could change U.S. capital gains tax rules. Take a look:

• The No Tax on Home Sales Act, brought by the former representative from Georgia, Marjorie Taylor Greene, would end capital gains taxes on the sale of primary residences. It’s been introduced; that’s all so far.

• The American Dream Act would be triggered if a deed holder aged 65+ sells to a first-time buyer. Second homes as well as primary residences could get exclusions up to $500K. Here again, the bill has been introduced, and that’s all so far.

• The Nest Egg Protection Act would exempt $1 million from taxes for individuals and couples aged 65+ who’ve owned their primary residence for 25+ years. This “Senior Home Sales Incentive” is just what it sounds like. It’s meant to nudge older deed holders to sell. In turn, there’d be more listings out there for first-time buyers.

• The More Homes on the Market Act, which would (a) double the capital gains exemptions for primary home sales, so joint filers could shield profits up to $1 million; and (b) allow for future inflation adjustments, too. Sponsored by Jimmy Panetta of California, the bill has strong bipartisan support. We’ll have to see what happens.

So, all of these proposals are available for lawmakers’ consideration. This is how law actually gets changed.

More than half of all deed holders will build up more equity than the current $250K federal capital gains tax exclusion for single filers by 2030, the National Association of REALTORS® projects. So, raising the amount to track inflation would be a boost for many deed holders. Still, the households in the lower half of the wealth brackets will gain little (if anything) from lawmakers’ efforts to shield more home-sale profits.  

Homes are investments. Historically, they tend to rise in value. Read more about real estate appreciation on Deeds.com.

Bottom Line: Midterm Rhetoric Will Not Impact Taxes on Home Sales

The whole idea that a capital gains tax break would be a popular giveaway before the midterms is dubious. First, because it can’t be done that quickly. Second, because it doesn’t do much (if anything) for the people who really need homes, or need to protect their equity. The administration’s claim that this idea would help “make American wealthy again” is dubious, too. If the relief were targeted to people of modest means who own homes long enough to build substantial equity, that would make sense. But this… isn’t that.

At Deeds.com, we continue to keep deed holders apprised of proposals that could affect property transfers. Meanwhile, if you’re planning to sell a home, consult your accountant or estate planning attorney. Get case-specific tax guidance. And of course, keep tabs on your state-level tax laws. Your state might expect you to pay taxes even when the IRS doesn’t. A tax expert in your state can advise you on the specifics as they apply to your sale.