Homeowners Face Potential Capital Gains Tax Shift: What to Know Now
Arizona is moving to cut taxes on home sale gains, while Senators Ted Cruz and Tim Scott push for nationwide capital gains tax relief.
Arizona lawmakers have approved a proposal to eliminate state capital gains taxes on profits from the sale of a primary residence. It's a measure supporters say would reward longtime homeowners and make it easier for families to move, freeing up homes for more buyers.
The vote puts Arizona at the center of a growing debate over whether Americans should pay taxes at all when they sell their homes for a profit.
It also lands at a pivotal moment for the housing market. Mortgage rates have eased back toward roughly 6% after climbing sharply in recent years. But the housing supply remains historically tight, according to the National Association of Realtors (NAR).
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Meanwhile, on Capitol Hill, Sens. Ted Cruz (R-Texas) and Tim Scott (R-SC) are reportedly urging the Trump administration to index capital gains to inflation through executive action.
That's a change supporters say could cut taxes for homeowners and boost housing supply. But critics warn it could reduce federal tax revenue and primarily benefit higher-income households.
So, will you stop paying taxes on gains from the sale of your home soon? Here's more of what you need to know.
Arizona proposal to eliminate capital gains tax on home sales
Senate Bill 1633 would remove the capital gains tax on homes that have been someone’s primary residence for at least five years starting in 2027.
The bill's sponsors argue that treating a family home as a home, not an investment, would reduce barriers to moving and help free up existing housing stock.
"Taxing gains on a primary residence can trap people in homes that no longer work for them," said Republican state Sen. J.D. Mesnard, who sponsored the bill. “Seniors may delay downsizing. Families may stay in houses that are too large, too small, or too far from work. When someone sells their home, the state should not take a cut of the equity they worked years to build."
Critics argue that the bill benefits wealthy sellers.
State Sen. Mitzi Epstein called SB 1633 “a bill for billionaires that must be stopped,” warning in floor debate that it would mostly benefit the wealthy and cost Arizona $18 million a year. As of 2026, Arizona taxes capital gains as regular income, applying its flat 2.5% income tax rate to most gains.
Note: The Senate passed it 16‑12 (2 not voting). It still must clear the state House and be signed by the governor to become law.
Cruz, Scott urge executive action to lower capital gains taxes without Congress
Meanwhile, Arizona’s debate is unfolding alongside a broader effort to reshape federal capital gains taxes.
- Last year, as Kiplinger reported, former Rep. Marjorie Taylor Greene introduced the No Tax on Home Sales Act, which would fully eliminate federal capital gains taxes on the sale of a primary residence.
- Currently, homeowners can exclude up to $250,000 in primary home sale gains ($500,000 for married couples filing jointly), provided IRS rules are met. At the federal level, long-term capital gains tax rates are 0%, 15%, or 20%, depending on income.
- Greene argued that homeowners are being unfairly penalized for appreciation that often reflects inflation and long-term ownership rather than speculative investment.
The proposal didn't advance in Congress, but the stage is set for a more aggressive push now.
The bipartisan More Homes on the Market Act, introduced by Rep. Jimmy Panetta (D‑Calif.) with over 100 cosponsors, aims to raise the federal capital gains exclusion on primary residences and index it to inflation. (A Senate companion bill proposes similar changes to encourage homeowners to sell and improve housing supply.)
More recently, as first reported by The Washington Post, Sens. Cruz and Scott sent a letter to Treasury Secretary Scott Bessent urging the Trump administration to use regulatory authority to reduce capital gains taxes without waiting for Congress.
“Using your executive authority to eliminate an unfair inflation tax on everyday Americans is the single most pro-growth economic action the administration can take unilaterally,” the senators reportedly wrote.
The lawmakers want the Trump administration to index capital gains to inflation. (Currently, capital gains taxes are levied on the full profit after an asset is sold, without accounting for inflation. Their proposal would tax only "real" gains above inflation, rather than eliminating capital gains taxes entirely, as Greene’s bill suggested.)
- Cruz and Scott reportedly note the correlation to housing, arguing that current capital gains rules contribute to what economists call a “lock-in effect.”
- Many older and long-term homeowners choose not to sell because their homes provide financial stability. Moving could mean trading a paid-off or low-rate mortgage for significantly higher housing costs.
- The argument is that adjusting the cost basis of capital gains for inflation could incentivize long-standing homeowners to downsize.
As you might expect, the idea isn't without its critics.
Some argue that the proposed changes to capital gains taxes would primarily benefit higher-income homeowners, since many middle-income sellers already qualify for the exclusion that allows them to avoid federal capital gains tax on their primary residence.
Then, there's a key issue with the Cruz/Scott proposal of whether the U.S. Treasury has the authority to implement such changes without Congressional approval, which could lead to court challenges.
Also: Reducing or eliminating capital gains taxes may significantly decrease federal revenue, potentially increasing deficits unless offset by other means. Some estimates suggest indexing capital gains taxes to inflation could cost around $200 billion.
How no capital gains tax could affect homeowners
The impact of capital gains tax changes for homeowners in the U.S. varies by location and how long they’ve owned their homes.
Many selling modest homes might already owe no federal tax due to the $250,000/$500,000 federal exclusion, but longtime owners in high-cost markets could exceed it, according to NAR data; about one-third do.
If capital gains taxes on home sales are eliminated, some say homeowners might keep more equity, retirees could downsize with less worry about taxes, and housing inventory could modestly increase.
Still, analysts caution that most households would see little benefit.
Research from the Tax Policy Center finds that roughly 95% of homeowners — including about 90% of those 65 and older — already pay no federal tax on the sale of a primary residence. A similar analysis from the Brookings Institution suggests the biggest savings would go to higher-income households with very large gains.
So, the debate over the best way to handle capital gains tax continues. Stay tuned.
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