Bipartisan support is growing in both the House and Senate to double the capital gains tax exemption for home-sale profits.
Sen. John Cornyn, R-Texas, who faces a potentially tough reelection battle next year, introduced bipartisan legislation Wednesday that would increase the exemptions, which currently stand at $250,000 for individuals and $500,000 for married couples. The caps would increase to $500,000 and $1 million, respectively.
The draft bill is also backed by Sens. Michael Bennet, D-Colo.; Adam B. Schiff, D-Calif.; Mark Kelly, D-Ariz.; John Barrasso, R-Wyo.; and Steve Daines, R-Mont.
A similar push was already underway in the House. Ways and Means Committee members Jimmy Panetta, D-Calif., and Mike Kelly, R-Pa., introduced a nearly identical bill in February. That bill currently has 92 co-sponsors from both parties.
The existing caps, which haven’t changed since 1997, also aren’t subject to annual inflation adjustments. The bill would implement an annual adjustment for inflation moving forward.
“The American dream is rooted in owning a home and raising a family, but an outdated tax code not only prevents the next generation from being able to afford a home, but it also prevents seniors seeking to downsize from selling theirs,” Cornyn said in a statement. “This legislation would update the tax code to incentivize sellers and make homes more affordable, and I’m glad to support it.”
Realtors and the housing industry have advocated for years for a more generous capital gains tax exclusion for home sales, which they say would incentivize more homeowners to put their properties on the market.
The legislation is endorsed by stakeholders including the National Association of Realtors and AARP, the seniors’ lobby whose members would have more reason to trade their longtime homes for something more aligned with their current needs.
“Realtors are frustrated because they have a lot of clients who are first-time homebuyers and also people now in smaller homes who want to move up to larger ones, but there aren’t many homes available,” said Evan Liddiard, director of tax policy at the National Association of Realtors.
“For decades, there was a certain percentage of older people, when they get to be in their 60s or 70s, sometimes as early as 50s, [who] will sell and move to a smaller house because their house is too big, because they’re empty-nesters now, but they’re not doing that in anywhere near the numbers that they used to,” he said. Raising the cap would have a trickle-down effect that would result in more homes going up for sale, he added.
However, only a limited number of homeowners would benefit directly from the higher exemption thresholds, and those who would benefit tend to be wealthier, higher-income and older than those with profits below the current caps, according to The Budget Lab at Yale.
A July study from the group, a think tank founded by former top Biden administration economic aides, found that in 2022 only about 10 percent of homeowners had capital gains that exceeded the current exemptions and the average net worth of that group was $5.7 million.
The Senate bill’s introduction also comes as Cornyn is up for reelection in Texas and faces a tough primary challenge from Texas Attorney General Ken Paxton and GOP Rep. Wesley Hunt, who is a co-sponsor of the House bill.
A University of Houston poll in October found Cornyn and Paxton in a dead heat with Hunt trailing. A December poll by Public Policy Polling of 527 likely GOP primary voters showed Paxton leading with 32 percent of the vote, compared with 22 percent for both Cornyn and Hunt.
Legislative options
Passage of the legislation could give Cornyn a modest boost as Republicans seek to drive home an “affordability” message to voters to thwart Democratic momentum ahead of the 2026 midterms.
But the bill is unlikely to pass as stand-alone legislation. Conservatives could seek to include the provision in a second budget reconciliation bill, on the heels of the GOP’s “big, beautiful” reconciliation package enacted last summer.
However, it’s not clear a second package would have enough momentum to get off the ground, and President Donald Trump appeared to dismiss the need for one in October, saying, “We don’t need to pass any more bills.”
An alternative strategy would be to include the capital gains provision in some kind of bipartisan year-end tax package, if one emerges. The bipartisan support for Cornyn’s bill could make that strategy more likely.
A competing bill, which lacks bipartisan support, would eliminate the capital gains tax altogether on sales of primary residences. That bill, introduced in July by retiring Rep. Marjorie Taylor Greene, R-Ga., has three Republican co-sponsors and is awaiting action in the House Ways and Means Committee.
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