The housing market is stagnant, and while people are staring at interest rates as the culprit, there’s a second culprit: a capital gains tax bill Washington wrote in 1997 and has left alone since. Congress has a chance to fix that with a bill that would index capital gains taxation on home sales for inflation. It’s overdue. Congress hasn’t touched the law in 29 years.
Current law allows individuals to exclude up to $250,000 and married couples up to $500,000 from capital gains tax on the sale of their homes. That standard was set in 1997 and hasn’t moved since. Congress is often accused of kicking the can down the road, but here, they haven’t even done that. It’s an anomaly: The standard deduction, retirement contribution limits, and other parts of the tax code get annual inflation adjustments. Homes are put on the market, sold, and part of transactions every single day in America. You’re likely to see a for-sale sign in someone’s yard on your way to work. Yet, the tax code has left homeowners behind with a law that hasn’t been updated since before iPhones existed.
There’s a fix, and it’s a conservative one: cut the tax, index it, and get out of the way. The More Homes On The Market Act is a bill that would do exactly that. It carries bipartisan support, and it’s a Republican-led effort. It would raise the thresholds to $500,000 for individuals and $1,000,000 for married couples, then index both automatically for inflation going forward. The median home price was $139,000 in 2000 and has risen to $417,700 today. That’s a 200% increase with no adjustment to the tax exclusion, meaning Washington has quietly raised taxes on homeowners for three decades without a single vote.
Redfin just reported that home sales and new listings dropped to their lowest level in nearly two years. Sales fell 4.1% in July, with pending transactions down 2.5%. Residential sales hit their lowest level in three decades just last year. The market is frozen with buyers spooked by rates and sellers boxed in by the tax. Congress can’t adjust rates, but it can fix the tax.
This cut is the right place to start, for two reasons. First, it unlocks inventory by letting sellers respond to the incentive. Second, it’s basic fairness. A retiree who bought her house in 1997 and stayed for three decades built that equity herself. Washington shouldn’t tax it like a windfall.
Senate Republicans don’t need a permission slip to bring this bill to the floor. It’s already co-sponsored by 17 Republican senators, the kind of pro-free-market fix conservatives should champion. Unlike interest rates, this is entirely within Congress’s control, and it’s a problem Congress created. Republicans hold the majority of the co-sponsor list. Now is the time to finish it.
BREAK AN ACRE, PAY FOR 24: THE LEGAL EXTORTION CRUSHING HOMEOWNERS
Republicans face a challenging political landscape heading into the midterm elections. The Silver Bulletin notes Democrats need a net gain of just four Senate seats to flip control, with Vice President JD Vance holding the tiebreaker in the chamber’s current 53-47 Republican majority. Silver’s generic ballot average has Democrats ahead by 6.7 points, a lead that may understate their strength once turnout is factored in.
Affordability is the top issue, and it’s no secret. Pew confirmed it last month: 47% of respondents want candidates talking about the economy, more than double the next-closest issue, healthcare, at 19%. Voters want Washington to focus on kitchen table issues that make their dollars go further. Cut the tax. Put more homes on the market and watch good policy spiral into good politics.
Chuck Flint is the executive director of the Coalition for Affordability and Prosperity.