Home Sale Capital Gains Tax Could Change: What Houston Homeowners Should Know

Written by Kristi Newcomb, Lead Agent | Newcomb Realty Group

 

What if one of the things keeping homeowners from selling has nothing to do with mortgage rates?

For some longtime homeowners, capital gains taxes may be part of the equation.

A federal tax rule created nearly 30 years ago allows qualifying homeowners to exclude a certain amount of profit when selling their primary residence. The problem? Those limits have remained unchanged since 1997, even as home values have climbed significantly.

Now, proposed legislation could double those limits, potentially removing one more barrier for longtime homeowners who are ready to sell.

And if it passes, the impact could extend beyond individual homeowners. It could also help bring more homes onto the market.

Quick Summary: 

Current federal law allows qualifying homeowners to exclude up to $250,000 in gain from the sale of a primary residence, or up to $500,000 for married couples filing jointly. Proposed legislation would double those limits to $500,000 and $1 million and provide for future inflation adjustments. As of September 2026, the proposal has not become law.

How Does the Capital Gains Exclusion Work When Selling a Home?

Under current federal tax rules, qualifying homeowners may exclude up to:

Filing Status	Current Exclusion
Single	$250,000
Married filing jointly	$500,000

If you qualify and sell your primary residence for a gain, up to $250,000 may be excluded from federal taxable income for a single filer or up to $500,000 for a married couple filing jointly.

Generally, homeowners must have owned and lived in the home as their primary residence for at least two of the five years before the sale to qualify.

Additional rules and exceptions apply, so every homeowner's situation can be different.

The Problem: Those Numbers Were Set in 1997

The $250,000 and $500,000 exclusion limits date back to the Taxpayer Relief Act of 1997, and a lot has changed in the housing market since then.

Homeowners who purchased decades ago may now have hundreds of thousands of dollars in appreciation simply because of how much home values have increased over time. While that growth in equity is a good thing, it can create an unexpected tax consideration when it comes time to sell.

For longtime homeowners thinking about downsizing, relocating or moving into a home that better fits their current lifestyle, a potential capital gains tax bill can become one more reason to stay where they are.

A Proposal Could Double the Home Sale Exclusion

The More Homes on the Market Act, currently proposed in Congress, would increase the federal home sale capital gains exclusion to:

Filing Status	Current Limit	Proposed Limit
Single	$250,000	$500,000
Married filing jointly	$500,000	$1 million

The legislation would also provide for future inflation adjustments so the limits wouldn't remain frozen as home values and the cost of living change.

Important: This is proposed legislation. As of September 2026, these higher limits have not become law.

Could This Bring More Homes to the Market?

This isn't only a tax conversation. It's also an inventory conversation.

Imagine a couple who bought their home 25 or 30 years ago. Their children are grown, they no longer need as much space and they're ready to downsize. But after decades of appreciation, selling could come with a significant tax consequence, giving them another reason to stay put.

This isn't a small group of homeowners, either. NAR research estimates that nearly 29 million homeowners could already face potential capital gains taxes if they sell.

Multiply that decision across thousands of homeowners and fewer homes make it to the market.

Supporters of the More Homes on the Market Act argue that increasing the exclusion could remove some of that hesitation and create more movement in the housing market.

When a longtime homeowner downsizes, their home becomes available to another family. That family's previous home may then become available to another buyer.

One new listing can create several moves throughout the market.

What Could This Mean for Houston Homeowners?

Greater Houston has experienced significant growth and home appreciation over the past several decades.

Longtime homeowners in established areas throughout Cypress, Katy, Tomball, The Woodlands, Spring, Sugar Land and surrounding communities may be sitting on significantly more equity than they realize.

Local Insight: This issue may be especially relevant for homeowners who purchased decades ago and are now considering downsizing, relocating or moving closer to family. A homeowner may be ready for their next chapter but hesitant to sell without first understanding what could happen to the equity they've built.

For most homeowners, building substantial equity is something to celebrate.

But if you've owned your home for a long time and are considering selling, understanding your estimated gain, adjusted cost basis and potential tax exposure should be part of the conversation before putting the home on the market.

And remember: your potential taxable gain isn't necessarily as simple as subtracting what you originally paid from your sale price.

Certain qualifying improvements, selling expenses and other costs may affect your adjusted basis and ultimately change the amount of gain that may be taxable.

A Simple Example

Imagine a married couple purchased their Houston home years ago for $300,000 and eventually sells it for $1 million.

That does not automatically mean they have a $700,000 taxable gain.

Qualifying improvements, certain selling expenses and other factors can affect the home's adjusted cost basis and ultimately the amount of gain that may be taxable.

This is why homeowners with substantial equity should talk with a CPA or qualified tax professional before assuming what they may owe.

Should You Wait to Sell?

Not necessarily. The proposed legislation could change, take time to move through Congress or never become law.

Your decision to sell should be based on your finances, equity, housing needs and future plans. If you've owned your home for many years and built significant equity, it's worth talking with your CPA or tax professional before selling.

A Realtor can help you understand what your home may sell for today, while your tax professional can help determine what that sale could mean for you financially.

Together, those numbers can give you a much clearer picture of your options.

Frequently Asked Questions About Capital Gains When Selling a Home

Thinking About Selling Your Houston Home?

If you've owned your home for years, you may have more equity than you realize.

Newcomb Realty Group can help you start with an estimated home value, current market conditions and expected selling costs so you have real numbers before deciding what comes next.

Owned your Houston-area home for years? Send us a message to find out what it could sell for in today's market and how much equity you may be sitting on.

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This article is for general informational purposes only and is not tax, legal or financial advice. Tax laws, proposed legislation and individual circumstances vary. Consult a qualified tax professional or CPA regarding your specific situation.