“$0 Tax On ALL Profits!” - This NEW Housing Market Proposal Is INSANE
In a Nutshell
A proposed executive order would raise the capital gains exclusion on home sales to $1 million, potentially including rental and vacation properties. This could unlock 1.5 million additional listings, driving a 25-35% surge in housing supply and pressuring prices lower—especially in investor-heavy markets. The measure is unlikely to pass before midterms and would mainly benefit wealthy coastal homeowners while risking net losses for sellers if prices fall more than the tax savings.
These notes were generated by AI and may contain inaccuracies.
Discussions are underway regarding a potential executive order that could allow homeowners to pay no capital gains taxes on up to the first million dollars of profit when selling any kind of real estate. Dave Ramsey discussed this possibility on his show, mentioning that midterms are coming and talks are occurring about using a reconciliation bill to move the exclusion limit to a million dollars. This would apply to rental properties, vacation homes, and primary residences, not just personal residences.
Under the current system established by the Taxpayer Relief Act of 1997, homeowners can exclude the first $250,000 to $500,000 of profit when selling a primary residence, provided they have lived in the property for two of the last five years. These exclusion limits have never been indexed to inflation despite home prices quadrupling since 1997. If the $500,000 exclusion had been indexed to inflation from 1997, it would be worth just over a million dollars today.
Consider a couple who bought a home for $400,000 in 2005 and sells it today for $1.4 million, resulting in a $1 million profit. Under current rules, they could exclude $500,000 and pay tax on the remaining $500,000, resulting in approximately $119,000 in federal taxes. Under the proposed plan, this tax liability would be zero.
The proposal would extend the exclusion to rental properties, which currently do not qualify unless the owner has lived there for two of the last five years. There are 49 million rental units in the United States, with half holding mortgages under 4% and an average of $300,000 in equity. Many landlords currently refuse to sell due to low interest rates and capital gains tax concerns. The proposal would remove the two-out-of-five-year residency requirement, potentially triggering a wave of selling as investors seek to take advantage of the tax-free profit before any temporary provision expires.
Using an example: a $400,000 home now worth $800,000 generating $2,000 monthly profit would result in $80,000 in capital gains tax upon sale, equivalent to wiping out 40 months of rental income. Removing capital gains taxes would effectively provide sellers with an additional 40 months of rent, not accounting for depreciation recapture. This incentive structure would encourage more selling activity, increasing market inventory and theoretically decreasing property values.
Previous legislative efforts include the No Tax on Home Sales Act, which would eliminate dollar caps entirely for primary residences, and the bipartisan More Homes on the Market Act, which would double exclusion limits to $1 million and index gains to inflation. Both proposals have stalled in Congress.
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According to the National Association of Realtors, 34% of homeowners have gains above $250,000 and only 10% have gains above $500,000, with these concentrated in coastal states including California, Washington, Massachusetts, Hawaii, and Washington DC. Short-term, the homes most likely to be unlocked by this proposal would be expensive properties in coastal cities, as most houses elsewhere still fall under current exclusion limits.
If just 3% of the 49 million rental units list due to this proposal, approximately 1.5 million housing units would flood the market, increasing supply by 25-35%. Markets with significant investor activity such as Las Vegas, Phoenix, Tampa, Atlanta, and Dallas would see particularly pronounced effects. Increased inventory would lead to more competition between sellers and potentially lower prices as sellers might accept lower offers due to tax savings.
If implemented as a temporary measure, the first year would see a wave of selling and lower prices, with prices stabilizing in the second year. As the provision expires, homeowners would rush to sell simultaneously, creating another inventory surge and potential national home price decline. Historical precedent exists: home sales fell 27% in July 2010, three months after first-time buyer credits expired.
Winners include homeowners with substantial equity considering selling, and buyers benefiting from increased inventory and potentially lower prices. Losers include existing homeowners with minimal gains forced to sell into a market with suppressed prices due to increased competition. Renters may face challenges as increased rental competition emerges when sellers choose to rent instead of buy, and reduced rental inventory if landlords exit the market entirely, potentially driving rental prices higher.
The proposal could theoretically pass through budget reconciliation, requiring only a simple majority in the Senate for legislation involving taxes, spending, and federal budget. This process was used for the previous reconciliation bill. However, provisions adding to the national deficit over 10 years get eliminated, which is why provisions like no tax on tips and no tax on overtime expire after 2028. Republicans are currently working on a third reconciliation bill with no mention of tax code changes, and Senate leadership has indicated reluctance to touch the tax code to avoid Democratic votes on Medicaid and Obamacare subsidies before elections.
With midterms just over a month away and most of Congress absent for October, combined with the five-month timeline required for the previous reconciliation bill, the probability of passage is estimated in the low single digits. The proposal would likely be temporary if passed, similar to other recent tax provisions.
No current congressional discussions address extending this to investment properties. The rental property aspect mentioned originates from a single podcast discussion rather than formal legislative proposals.
Expanding the capital gains exclusion to $1 million would index the gain to inflation as originally intended in 1997 and incentivize more selling activity. While some argue homeowners would have more money to roll into subsequent purchases, neutralizing benefits, many sellers are likely empty nesters downsizing and funding retirement rather than trading laterally. This could free up inventory beneficial for first-time home buyers and starting families.
According to Yale research, only 10% of homeowners have gains above current limits, with an average net worth of $5.7 million among this group. The proposal would primarily benefit wealthy individuals in coastal cities with expensive real estate rather than serving as a middle-class tax credit.
Increased inventory from this proposal could cause home prices to fall more than the tax savings for some sellers. For example, a married couple with a $700,000 gain ($200,000 over current limits) would pay approximately $47,000 in taxes. However, a 5% price decline on a $1.2 million home would result in $60,000 in lost value, exceeding the tax liability.
The fundamental solution requires encouraging more building rather than temporary tax incentives. Future technological advances like AI robots for construction could reduce building costs, but current market dynamics are likely to persist without increased supply.
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