According to the National Association of Realtors (NAR), more than 13 million homeowner households already exceed the current capital gains exclusion limits. Economists and housing groups say the issue is adding pressure to an already constrained housing market, particularly in regions where inventory remains limited.
The currentfederal exclusion allows single filers to exclude up to $250,000 in gains from the sale of a primary residence, while married couples filing jointly can exclude up to $500,000. Those thresholds have not been updated in nearly three decades.
During the same period, home prices have risen substantially. According to Realtor.com data cited by NAR, the median US home price increased from roughly $129,000 in 1997 to $419,300 today. The organisation said this growth has pushed many long-term homeowners closer to, or beyond, the tax limits.
High-cost states and metros show the greatest exposure
The impact is uneven across the country, with homeowners in high-cost states facing the highest levels of exposure. According to NAR’s analysis, 51.3% of homeowners in Hawaii and 43.6% in California now hold gains above the applicable exclusion threshold. Large states with strong housing appreciation also show elevated exposure levels. In New York, 25.6% of homeowners exceed the limit, while the figure stands at 17.9% in Florida and 8.2% in Texas.
At metropolitan level, California and Hawaii dominate the list of the most exposed housing markets. NAR found that around 63% of homeowners in San Jose exceed the applicable threshold. Urban Honolulu follows at 54.4%, while San Diego stands near 54%.
According to Nadia Evangelou, senior economist and director of real estate research at NAR, the issue is no longer confined to traditionally expensive housing markets. She said some homeowners purchased ordinary homes decades ago before price growth significantly increased property values.
The report also identified lower-exposure states across parts of the Midwest and South. Mississippi recorded the smallest share of affected homeowners at 2.4%, followed by Iowa at 2.7% and Louisiana at 2.8%.
Fast-growing markets are increasingly affected
The analysis highlighted a separate trend in rapidly growing housing markets where appreciation has accelerated over a shorter period. Cities such as Boise, Idaho, and Nashville, Tennessee, were identified as areas where homeowners who bought before recent price increases are approaching the exclusion threshold more quickly.
According to NAR, 21.5% of homeowners in Boise and 17.7% in Nashville already exceed current limits. The organisation said additional price growth could significantly increase exposure in these markets.
At state level, Idaho, Utah, Arizona and Nevada were also highlighted as vulnerable to further increases. NAR estimated that 20.4% of Idaho homeowners and 24.4% of Utah homeowners currently exceed the exclusion threshold.
The report examined several future price-growth scenarios but stressed these were not forecasts. Under a 30% growth scenario, exposure would rise to 39% in Idaho and 46.5% in Utah, according to the analysis.
Housing economists cited by Realtor.com warned that higher taxes on home sales may reduce housing turnover further. According to Joel Berner, senior economist at Realtor.com, the trend could slow inventory recovery following the pandemic housing surge.
NAR has supported legislative proposals to increase the exclusion thresholds and link them to inflation. One proposal referenced in the report, the More Homes on the Market Act, would raise the exclusion to $500,000 for single filers and $1 million for married couples filing jointly.
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