**What You Need to Know About Capital Gains When You Sell Your Home**
Here's the short version: If you've owned your home for a while and it's gone up in value (like most homes have), Uncle Sam might want a piece of your profit when you sell. But there's good news—you can keep a chunk of that profit tax-free. The bad news? The rules haven't kept up with reality.
Now, supposedly help is on the way. The **More Homes on the Market Act** has been sitting on Capitol Hill since 2023. What's it supposed to do? Double the current capital gains exemptions from $250,000 to $500,000 for singles, and from $500,000 to $1 million for married couples filing jointly.
Think about it this way: Congress is trying to update a 1997 rule that's about as outdated as your old flip phone. The bill's got bipartisan support—both Democrats and Republicans seem to agree this needs fixing. When will it pass? Nobody knows. Could be this session, could be next year, could be never. Washington moves at its own speed, which is to say, not very fast.
Let me make this easy on you—here's what you need to know right now, with or without this new bill.
**The Basics—In Plain English**
When you sell your primary home for more than you paid for it, that profit is called a capital gain. The IRS generally wants to tax capital gains, but back in 1997, Congress decided homeowners deserved a break. If you lived in your home for at least two of the last five years, you could keep up to $250,000 in profit tax-free if you're single, or $500,000 if you're married filing jointly.
Pretty good deal, right? Well, it was—in 1997.
**Let's Look at Three Real-World Examples**
Think about these folks—they could be your neighbors:
**The Johnsons - Under the Limit**
Bought their Franklin home in 2015 for $350,000. They're selling this year for $575,000. That's a $225,000 gain. Since they're married and filing jointly, they get a $500,000 exemption. Their tax bill on the sale? Zero. They pocket the whole $225,000. Even without the new bill, they're sitting pretty.
**Sarah - Just Over the Edge**
Single professional who bought her Green Hills condo in 2010 for $180,000. Market's been good to her—she's selling for $465,000. That's a $285,000 gain. Her exemption? $250,000. She'll pay capital gains tax on $35,000 (the amount over her limit). At 15% capital gains rate, that's $5,250 to Uncle Sam.
Here's where that new bill would help—under the proposed rules, Sarah's entire $285,000 gain would be tax-free. She'd save that $5,250.
**The Smiths - The Long-Timers**
Here's where it gets painful. They bought their Belle Meade home in 1995 for $275,000. Today it's worth $1.1 million. That's an $825,000 gain. Even with their $500,000 married exemption, they're looking at capital gains tax on $325,000. At 15%, that's $48,750. At 20% (which kicks in at higher incomes), it's $65,000.
If that new bill passes? They'd owe nothing. Zero. That's a $48,750 to $65,000 difference. No wonder some folks in the Smiths' situation are staying put just to avoid that tax bill.
**Here's What's Worth Watching**
Home prices have gone up 260% since 1997. The tax exemption? Hasn't moved an inch. If it had kept pace with home prices (like the new bill is trying to fix), singles would get about a $660,000 exemption today, and married couples would get $1.32 million.
In Tennessee, about 36% of homeowners now have more equity than the $250,000 exemption covers. By 2030, more than half of all American homeowners will be in the same boat as Sarah and the Smiths.
**What This Means for You**
Here's what I'd do if I were in your shoes—**know your numbers before you sell:**
• **Your basis**: What you paid, plus major improvements (new kitchen, yes—new dishwasher, no)
• **Your estimated gain**: Sale price minus your basis
• **Your tax exposure**: Any gain over $250,000 (single) or $500,000 (married)
• **Your timing flexibility**: Can you wait for this bill, or do you need to move now?
Remember, you might pay 0%, 15%, or 20% on gains over the exemption, depending on your total income. Your CPA can nail down the exact number.
**The Bottom Line**
Should you wait for Congress to act? That's like waiting for your teenager to clean their room—it might happen, but I wouldn't bet the farm on it. If you need to sell, sell. If that tax bill would hurt too much, maybe you can afford to wait and see.
Talk to your CPA before you plant that For Sale sign. They can run the numbers both ways—under current law and under the proposed bill. Then you can make an informed decision.
After all, your home should be working for you, not the other way around. And whether Congress gets its act together or not, you've still got options.
