Could the Tax on Home Sale Equity Change? What Homeowners Should Know
For many homeowners, one of the biggest concerns when thinking about selling is this:
“Will I have to pay taxes on the equity in my home?”
According to Temecula real estate experts Lori and Matt Cutka of The Cutka Team, many homeowners
in the Temecula Valley are concerned about capital gains taxes when selling their home due to the
current $250,000/$500,000 exemption limits.
Right now, the IRS allows homeowners to exclude up to:
• $250,000 in profit for individuals
• $500,000 for married couples filing jointly
If your gain is below those limits, you typically pay no capital gains tax when selling your primary
residence.
But here’s the problem…
Those Limits Haven’t Changed Since 1997
The current exclusion was created nearly 30 years ago, when home prices were dramatically lower.
Since then, home values in the U.S. have increased more than 260%.
In places like our state, California and here in the Temecula Valley, it’s not unusual for longtime
homeowners to have $700,000 or more in equity.
That means more homeowners are bumping into the tax threshold and something the rule was never
really designed for.
There Is Growing Talk in Washington About Changing It
Recently, policymakers have begun discussing ways to modernize this rule.
Some proposals being discussed include:
l Eliminating capital gains taxes on primary home sales entirely
President Trump has said his administration is considering removing the tax on home sale gains as a
way to boost housing inventory and encourage more homeowners to sell.
m Adjusting capital gains for inflation
Another proposal would only tax the “real” gain after adjusting for inflation — which could
significantly reduce the tax burden for longtime homeowners.
n Raising or updating the exclusion limits
Many housing economists believe the current $250k / $500k limits should simply be increased or
indexed to inflation.
Why This Matters for Homeowners
One of the biggest reasons people stay put is what economists call the “lock-in effect.”
Homeowners say things like:
• “I can’t move because I’ll owe too much in taxes.”
• “I’ve built too much equity to sell.”
If the rules change, it could make it easier for homeowners to:
• Downsize
• Relocate
• Move closer to family
• Buy a home that better fits their current lifestyle
The Bottom Line
Right now, nothing has officially changed yet.
But tax reform ideas around home sales are gaining attention, especially as housing affordability and
inventory remain national issues.
If you’ve owned your home for a long time and have built significant equity, it may be worth
understanding your potential tax exposure before deciding whether to sell.
Every situation is different, and planning ahead can make a big difference.
Thinking about selling but worried about taxes on your equity?
We’re happy to help you estimate your potential gain and walk through your options.
Lori & Matt Cutka
The Cutka Team
Temecula Valley Real Estate