Capital gains taxes: Three words that wipe the smile from most home sellers’ faces as they see potential profits fall off a cliff.
However, in a bid to boost the housing market, President Donald Trump has been floating the idea of eliminating the tax on sales of personal residences, beyond the IRS exemption, which applies to single owners and married couples on the first $250,000 and $500,000 of profit, respectively. That’s great news for homeowners, but it could also benefit investors, too.
When asked about it in the Oval Office on July 22, Trump told reporters: “If the Fed would lower the [interest] rates, we wouldn’t even have to do that. But we are thinking about no tax on capital gains on houses.”
Who Benefits Most When Capital Gains Tax Is Removed?
Trump’s sentiments echo those of Rep. Marjorie Taylor Greene, R-Ga., who introduced the No Tax on Home Sales Act—the opening salvo in an attempt to eliminate capital gains taxes on primary home sales.
“Homeowners who have lived in their homes for decades, especially seniors in places where values have surged, shouldn’t be forced to stay put because of an IRS penalty,” Greene said in a statement. “My bill unlocks that equity, helps fix the housing shortage, and supports long-term financial security for American families.”
Greene’s comments align somewhat with an analysis from The Budget Lab at Yale University that showed wealthier, older homeowners would benefit most from the elimination of capital gains tax. However, eliminating the tax would be a costly hit for the IRS, and it’s unclear how much support Greene’s bill has.
Time to Change the Exemption Limits?
“I think this could generate some interest, but they’re more likely to raise the exemption than they are to eliminate the tax entirely,” Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center, told CNBC.
Gleckman has a valid point. The $250,000 and $500,000 exemptions were introduced in 1997 and have never been adjusted for inflation. According to Federal Reserve data, the median home sales price has increased from approximately $145,000 in the second quarter of 1997 to roughly $410,800 as of the second quarter of 2025—a jump of more than 180%. During that period, many homeowners’ equity has far exceeded the exemption limits, causing them to be hit with substantial capital gains tax bills if they were to sell.
The National Association of Realtors is behind the modification of the current capital gains tax exemption limits. NAR executive vice president and chief advocacy officer Shannon McGahn said in a statement:
“We welcome any serious proposal that addresses the outdated capital gains thresholds hurting American homeowners. This is no longer just a concern for higher-end properties. NAR’s research shows nearly 29 million homeowners [34% of current homeowners] already face potential capital gains taxes if they sell, and that number is expected to climb sharply over the next decade.”
70% of Homeowners Would Exceed The Exemption Limit by 2035
NAR’s commissioned research showed 56% of homeowners could face capital gains taxes by 2030. By 2035, the organization estimates that nearly 70% of homeowners could exceed the $250,000 cap.
NAR chief economist Lawrence Yun says that home equity is the primary way middle-class Americans build wealth, noting that over the last decade, the typical American homeowner has amassed more than $195,000 in wealth due to their home’s appreciation.
“This isn’t about speculation. It’s about protecting equity and helping the entire market function more efficiently,” McGahn says. “A homeowner shouldn’t be taxed like an investor.”
How Capital Gains Work
Capital gains are divided into two specific categories: short-term and long-term gains. Short-term gains are applied if you have held the property for less than a year, which is often the case with house flippers, and are assessed at the same rate as you’d pay on your regular income, with tax brackets being:
- 10%
- 12%
- 22%
- 24%
- 32%
- 35%
- 37%
Longer-term gains apply to assets held for more than a year and incur a lower tax rate. According to the IRS, for the 2025 tax year, individual filers won’t pay any capital gains tax if their total taxable income is $48,350 or less. The rate jumps to 15% if their income is $48,351 to $533,400. Above that income level, the rate climbs to 20%.
How to Claim a Flip as a Personal Residence
Flippers are in a race against time to complete their rehabs and minimize their holding costs. However, once they sell properties within a year, they will be subject to the highest capital gains taxes. Should Trump eliminate capital gains taxes for homeowners, flippers involved in long-term renovation projects for big profits could stand to benefit by legitimately claiming the flipped home as their personal residence.
Many flippers have employed this strategy in the past by living in a home they flipped for two years, which automatically qualifies them for not being taxed on their first $250,000 or $500,000 of profit. If you are undertaking a renovation on a larger property, that means moving in as soon as possible to claim two years of residence.
While it might be tempting to exercise some workarounds by living in a rental or Airbnb while claiming to be living in the renovated property, that’s a risky path. Changing your driving license address, having your mail delivered to your new primary residence, and finding a suitable area of the home to settle in while the rest of the house gets renovated is the safest approach.
Often, this means creating a makeshift kitchen and maintaining a usable bathroom during the renovation period. There’s no law stating that you can’t go on vacation or stay over at family members’ homes for a few days here and there as you would normally.
Becoming a Serial Mover for Big Profits
Serial flippers move from one home to the next, claiming significant capital tax exemptions along the way by living in each flip for two years at a time. Should limits be raised beyond $500,000 (for a couple), an expensive flip could return a tax-free upside.
When using this strategy, it’s best to complete all the heavy construction work before moving in. Even if you have to endure some dust and inconvenience for a while, the potential windfall makes this a worthwhile, often-used strategy.
You can also further reduce your home’s sale profit—increasing your “basis”—by adding capital improvements such as your renovations to the original sales price, reducing your tax exposure. If you plan to move every two years, minimizing closing costs by getting a real estate license and keeping moving expenses down will further add to your profit. It’s also a strategy best done without kids in tow.
Final Thoughts
One advantage of claiming a home you are renovating as a primary residence is that you are not paying a personal mortgage on top of the holding costs of a flip. As an owner-occupant, you can qualify for a conventional mortgage with a lower interest rate than through a hard money lender. Additionally, depending on the type of mortgage you have, you may be eligible for lower-interest renovation loans, such as an FHA 203(k) loan, which could result in considerable savings over hard money loans.
This strategy is ideal if you don’t plan to flip multiple houses simultaneously, but rather prefer to focus on one relatively expensive house at a time, maximizing profit in every way possible. It’s ideally suited for multilevel and two-to-four-unit multifamily properties, where you can live on one floor while the other gets renovated.
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