Homeownership has long been one of the most reliable ways Americans build wealth. Even with today’s affordability challenges, the dream of owning a home remains strong—because it’s not just about having a place to live, but about building equity and securing a financial future.
For many, that equity becomes a nest egg—used to fund retirement, support family, or pass down to the next generation. But now, an outdated tax rule is turning what was once a reward into a financial penalty.
In 1997, Congress simplified how profits from selling a primary home are taxed. The updated law allowed homeowners to exclude up to $250,000 in profit if single, or $500,000 if married and filing jointly. At the time, it was a major win. But the exemption was never tied to inflation.
Since then, home prices have surged more than 260%, while the exclusion amount has stayed the same. If the exemption had kept pace, it would now be about $660,000 for individuals and $1.32 million for couples. This mismatch is creating serious financial strain for long time homeowners.
A recent analysis from the National Association of REALTORS® found that nearly 1 in 3 homeowners—around 29 million households—now have more equity than the tax exemption protects. By 2030, more than half of all homeowners are expected to fall into that category.
In Tennessee, 36% of homeowners exceed the $250,000 exemption, and 8.3% surpass the $500,000 limit. In hot markets like Middle Tennessee, where prices have soared, many feel stuck—unable to sell without a hefty tax bill. Some even hold onto their homes until death, just so their heirs can avoid the capital gains tax through a stepped-up basis.
If Congress doesn’t act, projections show that by 2035, 13 states could see 90% or more of their homeowners exposed to capital gains taxes when they sell.
But there’s a glimmer of hope. A bipartisan proposal—the More Homes on the Market Act—would double the current exemptions to $500,000 for individuals and $1 million for married couples. This change would restore the law’s original purpose: to protect everyday homeowners, not penalize them for doing exactly what homeownership was always meant to do—build wealth.
