Potential capital gains tax changes discussions in Washington are a topic that homeowners—particularly longtime homeowners—may want to keep an eye on.
The Trump administration is reportedly considering changes to the way capital gains are treated when someone sells a primary residence. Among the ideas being discussed are increasing the amount of home-sale profit that can be excluded from capital gains taxes and potentially adjusting the calculation for inflation.
Nothing has changed yet. And because changes to the tax code generally require Congress to act, I would not make any decisions about selling—or not selling—your home based on these discussions. But I do think it is worth understanding why this conversation is happening.
Why does this matter to homeowners?
Under current federal law, a homeowner who meets the IRS ownership and use requirements can generally exclude up to $250,000 of gain when selling a primary residence. For a married couple filing jointly, that exclusion can be as much as $500,000.
The catch is that those numbers have been around since 1997.
Think about that for a moment.
A home that was worth $300,000 or $400,000 when someone bought it decades ago may now be worth $1 million, $1.5 million—or considerably more. In markets like Bethesda, Chevy Chase and Northwest Washington, I see this all the time.
The homeowner may not think of themselves as someone who has made a “huge investment.” They may simply be someone who bought a house years ago, raised a family there, maintained it, renovated it and watched the value grow over time.
But when they eventually sell, the increase in value can create a substantial capital gain.
That is where the current discussion becomes particularly interesting.
The idea of “indexing” for inflation
One proposal being discussed is to adjust capital gains calculations for inflation.
In simple terms, the idea is that a homeowner should not necessarily be taxed on appreciation that is simply the result of decades of inflation.
There is another proposal that would increase the amount of gain a homeowner can exclude from taxation. The National Association of REALTORS® has supported legislation that would increase the exclusion and index it for inflation going forward.
There is also bipartisan legislation in Congress that would temporarily increase the exclusion for certain qualifying older homeowners, although it is only a proposal at this point.
Why I think this is particularly interesting for Bethesda homeowners
After nearly four decades in real estate, I have had many conversations with homeowners who tell me some version of the same thing:
“I would love to move, but I’m not sure I want to deal with the taxes.”
Sometimes the issue is the size of the house. The children have grown up and moved away. The homeowner is tired of maintaining four bedrooms, a basement and a yard. Sometimes it is the stairs. Sometimes it is simply that the house has become more work than it is worth. And sometimes the biggest question is financial.
If you bought your home 30 or 40 years ago, your tax basis may be dramatically lower than today’s market value. That can make the potential capital gain an important part of the decision about whether—and when—to sell. This is one reason I believe downsizing conversations should begin well before someone is ready to put a house on the market.
We can talk about what your home might sell for. We can talk about what you might buy next. We can talk about renovations, moving costs and the practical side of making a move. But you should also have a conversation with your accountant or tax advisor about the tax consequences.
So, should you wait to sell?
I wouldn’t make that decision based on a proposal, particularly at this time.
At the moment, the existing federal rules are still the rules. The IRS continues to state that qualifying homeowners may exclude up to $250,000 of gain, or $500,000 for married couples filing jointly. There are specific ownership, use and other requirements, so everyone’s situation is different.
Could the rules change? Possibly. Would a larger exclusion potentially encourage some longtime homeowners to sell? I think it could. And that could be significant for the housing market. One of the problems we talk about constantly in real estate is lack of inventory. There are homeowners who might sell if the financial and practical reasons for moving made more sense.
If changing the capital gains rules makes it easier for some longtime homeowners to move, we could see more homes come onto the market. That, in turn, could create opportunities for buyers who have been frustrated by the lack of available homes. That is an outcome worth watching.
My advice if you have been thinking about moving
If you have lived in your home for many years and have been wondering whether it is time for a change, I would not wait for Congress to make the decision for you.
Instead, start gathering the information you need. Find out what your home is realistically worth today. Talk with your accountant about your estimated capital gain and what portion, if any, could be taxable under the current rules. Think about where you would actually want to live next. And perhaps most importantly, give yourself some time.
You don’t have to put a sign in the yard simply because you ask a REALTOR® what your house is worth. Sometimes the most valuable conversation is the one that helps you understand your choices. That is particularly true for longtime homeowners who have accumulated substantial equity.
And if you are a Bethesda or Chevy Chase homeowner who has been quietly wondering, “Should we stay, or is it finally time to move?”—I’d be happy to have that conversation with you.
There is no obligation and no sales pitch. After 38 years in this business, I have learned that sometimes people don’t need to be told what to do. They simply need someone who understands the market to help them think through their options.
Please remember that I am a real estate professional, not a tax advisor. Tax laws and proposed legislation can change, and your individual circumstances matter. Before making a decision based on capital gains or other tax considerations, please consult your tax professional.
About Lise Howe
For nearly forty years, I’ve been helping buyers and sellers navigate the Bethesda, Chevy Chase and Northwest Washington real estate markets. As an Associate Broker with RLAH @properties, I specialize in condominiums, luxury homes and helping homeowners successfully downsize into the next chapter of their lives.
Having toured, marketed and negotiated sales in virtually every major condominium building in Bethesda, I understand that choosing the right building is every bit as important as choosing the right floor plan. Whether you’re buying your first condo, selling a longtime family home or searching for the perfect lock-and-leave residence, I’d be delighted to put my experience, local knowledge and honest advice to work for you.
If you’re wondering which Bethesda condominium best matches your lifestyle, let’s have a conversation. After all, there’s no substitute for experience—and I’d love to help you find the place you’ll be happy to lock up, leave behind for a while, and look forward to coming home to.