Could You Owe Taxes When Selling Your Primary Residence?

Could You Owe Taxes When Selling Your Primary Residence?

The Primary Residence Home Sale Capital Gains Exclusion Hasn’t Changed Since 1997.
Here’s Why That Matters……

We explain how the Section 121 home-sale capital gains exclusion, set in 1997 at $250,000 for single filers and $500,000 for married couples filing jointly, has not been indexed for inflation in 28 years, creating a growing problem as home values rise.

Using CPI from 1997 through 2025, we note inflation is roughly 100%, implying the exclusion would be about $500,000 and $1,000,000 today if adjusted for inflation.

Citing the National Association of Realtors, 34% of homeowners (about 29 million) could exceed the $250,000 cap and 10% (about 8 million) could exceed $500,000. We also bring up proposed — but stalled — legislative fixes. This is quickly becoming a planning concern for homeowners, including in New Jersey.

We recommend a conversation with a financial planner before selling.

Takeaways:

• Section 121 exclusion limits have not been adjusted for inflation since 1997
• More homeowners may exceed the $250K / $500K capital gains thresholds
• Rising home values are increasing potential tax exposure on sale
• Proposed legislation has yet to result in changes to current law
• Evaluating tax implications is an important part of pre-sale planning

Links for “Could You Owe Taxes When Selling Your Primary Residence?”

The New Jersey Exit Tax video
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Additional Links and Sources:

Section 121 exclusion created in 1997
$250K/$500K limits unchanged since 1997
CPI inflation data 1997–2025
0.04% of taxpayers affected at enactment
29M homeowners may exceed $250K limit
Cruz Capital Gains Inflation Relief Act (2018, 2021, 2025)
More Homes on the Market Act (bipartisan, 2025)
Rep. Tim Burchett proposal sale of primary residence
Long-term capital gains tax rates 2025

Transcript for “Could You Owe Taxes When Selling Your Primary Residence?”

Could You Owe Taxes When Selling Your Primary Residence?
If you’ve owned your home for a long time and you’re thinking about selling, or if you’ve recently sold, there’s a tax rule that you need to know about.

And that rule hasn’t changed in 28 years.
And that’s actually the problem.

Back in 1997, Congress created what’s known as the Section 121 exclusion.

It allows a homeowner to exclude up to $250,000 of gains on the sale of their primary residence – if they’re a single filer.

Or up to $500,000 – if you’re a married couple, filing jointly.

At the time, back in 1997, these numbers were really generous.

Data from 1999 showed that less than a half of 1% of all taxpayers were going to be affected by this cap.

But there is one thing that they didn’t do — that they should have done, all those years ago.

They never indexed these amounts to keep up with inflation.

And here we are… 27, 28 years later… with the same dollar figures.

A dollar in 1997 is not a dollar today in 2026 (when we’re recording this).

Just using the rate of inflation, the consumer price index, the CPI… just using that from 1997 through 2025, puts the increase in, uh, inflation terms of roughly one hundred percent.

If Congress had simply kept up with the consumer price index… with the rate of inflation, the exclusion today would be…

(it) wouldn’t be $250,000 for single filers, it would be $500,000 for single filers.

And for married couples filing jointly, it wouldn’t be $500,000, it would be $1,000,000 dollars.

But instead, we’re stuck with these numbers that have been in place since 1997.

According to the National Association of Realtors, 34% of homeowners… that’s roughly 29 million people… could already exceed that $250,000 exclusion for single filers.

And 10%, or 8 million homeowners, have potential gains of $500,000 or more… basically blowing through the cap for married couples filing jointly.

So look, this is no longer a problem for wealthy folks in fancy zip codes.

This is a problem for everyone.

And it seems to be getting worse every year.

To be fair, some lawmakers are starting to take notice. And they’re trying to fix it, but nothing’s been done yet.

Ted Cruz introduced the “Capital Gains Inflation Relief Act of 2025.”

This would index the cost basis of capital assets …all capital assets… to the rate of inflation.

Now that admittedly had a hard time because we’re not just talking about a primary residence, we’re talking about ALL capital assets.

You should also know that Ted Cruz introduced something similar in 2018.

In 2021.

And now here in, last year, in 2025.

None of these have made any kind of progress on the floor.

On the house side of things, there were bipartisan lawmakers pushing a bill called the “More Homes on the Market Act” of 2025.

Kind of a goofy name.

But it would double the current capital gains exclusions put in place in 1997… and adjust them for inflation moving forward.

This is exactly what we’ve been talking about in this video!

Also, Tim Burchett, the representative from Tennessee, a great account to follow on social media. He posts a video almost every single day. Uh, he’s gone even further.

He has proposed legislation to eliminate the capital gain on a primary residence entirely.

But he’s also come out publicly and said he doesn’t think this really has a shot of getting passed.

The point is that people in Washington are starting to take notice.

They’re starting to realize this is a problem.

They just haven’t fixed it.

So what does this mean for me and you?

If you’re a homeowner here in the state of New Jersey, it’s no surprise that home values in the Garden State have gone up significantly over the last two decades.

There’s a lot of homeowners who bought homes in the 1990’s or in the early 2000’s, who are sitting on some pretty serious gains.

Gains that would take them past the exclusion amount. Which means they’re now going to owe capital gains taxes on the sale of their primary residence.

So look, we’re not here to tell you what Congress will or won’t do.

Nobody really knows what they’re going to do.

Or even if they’re going to do anything.

What we can tell you is this is really becoming a planning issue, right now.

If current law stays the way it is.

And it looks like it’s not going to be changing.

So if you’re thinking about selling your primary residence, if that’s part of your longer term financial plan…

Or if you’re helping a parent or a family member who’s thinking about doing something like this… the tax picture is a little more complicated than it was — even just a couple of years ago.

And it deserves a conversation.

If you’d like to think through how this might affect your specific situation, you need to be speaking with a financial planner.

This is exactly the type of things that we work on, with our clients here as well.

Thank you for watching Could You Owe Taxes When Selling Your Primary Residence?