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Before the House of Representatives left Washington on October 1 for the pre-election campaign season, a bipartisan bill of key importance to millions of homeowners was introduced by Representatives Jimmy Panetta (D-CA) and Mike Kelly (R-PA). Titled the “More Homes on the Market Act” (H.R. 9015), the legislation would double the capital gains exclusion for sales of principal residences from $250,000 to $500,000 for single filers and from $500,000 to $1 million for married couples filing a joint tax return, and also index these amounts for future inflation. While this bill is unlikely to move in 2022, it is a great first step upon which we can build next year.
For years, REALTORS® in parts of the nation where home values are the highest have noted that the current law maximum capital gains exclusion amounts are no longer covering the gains that many longer-term owners have when they sell their homes and downsize. The huge nationwide increases in home values over the past two or three years have spread this problem to much of the country. This has created a disincentive for many to want to sell their homes and move into smaller ones, or into retirement facilities, resulting in fewer homes coming onto the market in those areas. At this time of shortage of homes for sale, this is exacerbating the housing crisis.
The problem with the current law exclusion amounts is that they were not indexed for inflation when they were put into the tax law in 1997. A quarter century of inflation has greatly reduced the value of the once generous $250,000 and $500,000 thresholds, leaving millions of selling homeowners with so much tax due upon a possible sale that many are choosing to just not put their home on the market, either because they cannot afford to pay the tax or simply are not willing to pay it.
“Due to outdated limitations on home sale gain exclusions, homeowners who are looking to downsize are discouraged from selling their homes, which can stifle our real estate market and contribute to a lack of housing supply,” said Representative Panetta. “Increasing this exclusion through the bipartisan More Homes on the Market Act will make it easier for homeowners to earn more from their investment, which will incentivize them to sell and increase the amount of homes on the market.”
“On behalf of the more than 1.5 million members of the National Association of REALTORS®, I express my deep appreciation to Congressman Panetta and Congressman Kelly for introducing the More Homes on the Market Act,” said National Association of REALTORS® 2022 President Leslie Rouda Smith. “Enactment of this legislation would solve a serious and growing problem that is rapidly spreading throughout our Nation. As the months go by and inflation continues to eat away at the current-law exclusion limits, more and more homeowners in every area of the Nation will come to the unwelcome realization that this is adding to our housing crisis.”