By: Colin Allen, Executive Director of the American Property Owners Alliance
Oct 21
Homeownership strengthens families, communities and the economy. For many Americans, owning a home is one of their most substantial financial investments and a cornerstone of their retirement strategy.
October’s National Estate Planning Awareness Month and National Retirement Security Month are reminders that while it can be overwhelming, having a plan in place is critical to ensure your investment is carefully managed for years to come. What’s more, they amplify the importance of favorable tax policies that will allow homeowners to build equity that can be leveraged during retirement.
According to a survey from the American Property Owners Alliance in conjunction with occam by AlphaROC, 60 percent of homeowners say their home equity is a significant part of their financial plan for retirement.
Yet for many homeowners today, when it comes time to downsize or move to a retirement community, they are hit with a tax bill so great that they are reluctant to sell their current property.
The Capital Gains Exclusion on Home Sales
For decades, outdated capital gains exclusion amounts on the sale of homes have not kept pace with inflation.
Right now, the capital gains exclusion for single taxpayers is $250,000, and for married couples filing jointly, $500,000.
These amounts were set in 1997. Since then, the cost of living has nearly doubled and average home prices have more than tripled.
Essentially, the exclusions no longer cover the gains many long-term homeowners have when they sell or downsize their home – this particularly harms elderly Americans who own their home outright.
To provide homeowners with the same tax relief today as in 1997 would require an exclusion of $489,744 for single filers and $979,488 for married couples filing jointly.
Increasing the capital gains exclusion amounts and indexing them for inflation would allow America’s seniors to access the equity they’ve worked so hard to build without facing punitive tax consequences. In fact, there is bipartisan legislation on the table right now that would do just that.
But this just scratches the surface of changes policymakers need to enact to support American homeowners.
State and Local Tax Deductions
Since 2018, the state and local tax (SALT) deduction for state and local real estate, personal property, and other income or sales taxes has been capped at $10,000. Whether you’re a single filer or married ones, the SALT cap doesn’t change, meaning, married couples filing jointly can only deduct $10,000 total – or receive $5,000 if married and filing separately. However, a single filer can receive $10,000 total.
This “marriage penalty” is stripping homeowners of critical tax benefits that can help them get the most out of their investment and set up future generations for success. And with property taxes on the rise throughout the country, the cap is impacting more homeowners in both red and blue states.
With elements of the tax code – including the SALT cap – expiring at the end of 2025, property taxes are up for debate. Policymakers must use this opportunity to restore the incentives homeowners deserve.
Tax Foreclosure Policies
There is a lot to be done at the federal level to support homeowners, but state and local governments aren’t off the hook either.
In 10 states and Washington, D.C., an unjust tax foreclosure policy known as home equity theft remains on the books – either in its entirety or through sneaky loopholes.
Home equity theft allows local governments to take more than what is owed in property taxes, interest and penalties in the instance of a foreclosure. This unjust practice disproportionately harms elderly homeowners living on fixed incomes, leaving them with nothing.
States allowing equity theft in any form must enact robust protections to end this practice in its entirety, so their residents no longer have to live in fear of a small tax debt stripping them of their home and life savings.
What’s Next
Property owner tax incentives are diminishing while property taxes and home values rise. As an advocacy organization dedicated to preserving the value of property ownership in America, we are actively working to enhance tax incentives for homeowners and safeguard the hard-earned equity they’ve built.
Here’s how you can get involved:
- Send a message to Congress urging them to pass the More Homes on the Market Act, bipartisan legislation that will increase the capital gains exclusion for the sale of primary residences and ensure it is updated for inflation. (Bonus: It will also help more homeowners feel incentivized to sell, putting more homes on the market during America’s extreme housing shortage.)
- Pledge your support to end home equity theft in all forms.
- Sign up for updates from The Alliance to stay informed on policy changes and opportunities to make your voice heard to policymakers to restore the tax incentives property owners deserve.
Homeownership should always remain a way to build equity, not the root of a financial burden. Let’s work together to keep it this way.
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