{"id":409271,"date":"2026-07-23T10:07:34","date_gmt":"2026-07-23T10:07:34","guid":{"rendered":"https:\/\/www.newsbeep.com\/us-ca\/409271\/"},"modified":"2026-07-23T10:07:34","modified_gmt":"2026-07-23T10:07:34","slug":"california-home-sellers-are-getting-hit-by-a-hidden-home-equity-tax","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/us-ca\/409271\/","title":{"rendered":"California Home Sellers Are Getting Hit by a Hidden Home Equity Tax"},"content":{"rendered":"

One in four California<\/a> home sellers<\/a> now records more than $500,000 in gains after selling their primary home, new data shows. It’s some of the clearest evidence yet that more sellers are being pushed beyond the federal capital gains tax exclusion<\/a>.<\/p>\n

The analysis, from property analytics company Cotality<\/a>, found that California has the highest share of sellers reaching that level nationwide. Under current federal rules, qualifying married couples filing jointly can exclude up to $500,000 in gains from a primary-home sale. For single filers, the limit is $250,000.<\/p>\n

\u201cRapid home price appreciation, long ownership tenures, high housing costs, supply shortage, and outdated tax threshold make California homeowners particularly vulnerable to capital gains exposure,\u201d Archana Pradhan, principal economist at Cotality<\/a>, tells Realtor.com\u00ae<\/a>.\u00a0<\/p>\n

Last year, Realtor.com broke the story on how those forces had turned a once-generous tax provision into a hidden home equity tax<\/a>, exposing more ordinary homeowners to an unexpected tax burden while tightening the nation’s already strained housing supply.<\/p>\n

“Reports like this reinforce what Realtors\u00ae are seeing every day and what NAR\u2019s research has shown for years: the home equity tax has become a growing barrier to housing mobility,” Shannon McGahn, executive vice president and chief advocacy officer of the National Association of Realtors\u00ae<\/a>, tells Realtor.com. “While California has long been one of the clearest examples because of its high home values, our research shows this issue is no longer isolated to a handful of high-cost markets.”<\/p>\n

The latest data shows how that exposure is now materializing. In Pradhan\u2019s words, \u201cThe current numbers show how far housing market conditions have moved beyond the tax law\u2019s original intent.\u201d<\/p>\n

Why so many Californians are exposed to the hidden home equity tax<\/p>\n

California is an unusually clear case study for the national housing crisis. If the U.S. market has changed since the exclusion limits were set in 1997, California\u2019s has become almost unrecognizable.<\/p>\n

The meaning of a million-dollar home<\/a> is a good example. In 1997, the price point was synonymous with a mansion or other luxury listing\u2014and overall, a relatively uncommon occurance, Pradhan says. <\/p>\n

\u201cToday, they are widespread in many California markets, meaning a provision originally aimed at a narrow group of affluent households is increasingly affecting ordinary longtime homeowners,” she adds.<\/p>\n

And that price point is not necessarily for luxury homes\u2014the humble starter home has crossed the $1 million mark in 28 states<\/a>. In California, the changing meaning of a million-dollar listing has been even more extreme.<\/p>\n

Current and future capital gains tax exposure by metro areaNational Association of Realtors<\/p>\n

Five of the 10 U.S. metros with the highest thresholds for luxury listings are in California\u2014Los Angeles<\/a>, San Jose<\/a>, Oxnard<\/a>, San Diego<\/a>, and San Francisco<\/a>\u2014according to data from Realtor.com<\/a>.<\/p>\n

In Los Angeles, a home doesn\u2019t even enter the top 10% of listings until it crosses the $4.1 million mark. In San Jose, that threshold is about $3.25 million. And across all five California metros in the top 10, there are an average of more than 15,600 million-dollar listings annually.<\/p>\n

So, a million-dollar home is far from an outlier in many parts of the state. And as home prices have climbed to new highs in these metros, so has capital gains tax exposure.<\/p>\n

About 63% of homeowner households in San Jose have unrealized gains above their applicable exclusion threshold, according to an NAR analysis<\/a>. In San Diego, the share is about 54%.<\/p>\n

Why longtime homeowners face greater exposure<\/p>\n

But high prices alone don\u2019t explain California’s, or the nation’s, growing exposure. Homeowners in the Golden State also tend to stay put longer, giving years of appreciation more time to accumulate before a sale.<\/p>\n

The typical California seller today has owned their home for just under 11 years, according to real estate data firm ATTOM<\/a>. That’s the fourth-longest average tenure of any state in the nation. Over roughly that same period, home prices there have risen more than 93%.<\/p>\n

As a point of comparison, nationally, sellers today have owned their homes for about 8.5 years, during which home prices have risen roughly 70%.<\/p>\n

So longer tenure gives faster appreciation more momentum to push even modest homes toward the exclusion threshold. And for homeowners who have stayed much longer than the typical tenure\u2014like many senior residents\u2014the effect can be especially dramatic.<\/p>\n

Take today\u2019s median-priced California home, worth about $785,000. Based on the state\u2019s Home Price Index<\/a>, a comparable home would have been worth roughly $280,000 around 2002. This means a homeowner who bought around the middle of the market just 24 years ago could have accumulated more than $500,000 in gains by selling at today\u2019s median.<\/p>\n

The risk is wider than just California<\/p>\n

California may be the most extreme case, but it\u2019s far from the only one. Cotality found that 21% of sellers in Hawaii<\/a> and 19% in Washington<\/a> also recorded gains above $500,000.<\/p>\n

The phenomenon extends well beyond those three states. Earlier this year, the NAR estimated that more than 13.1 million homeowners nationwide<\/a> would exceed today\u2019s applicable capital gains exclusion if they sold.<\/p>\n

“Without action, that number is projected to grow by 1.3 million by 2030 as home values appreciate,” says McGahn. “Another study shows the number by 2030 could be 20 million, or 23% of owner-occupied homes.”<\/p>\n

To understand how that number has spiraled, it helps to zoom out from any specific market and take a holistic view of how the economy has changed since Congress set the current limits.<\/p>\n

National home prices have more than tripled since 1997, rising from about $129,000 then to more than $419,000 today. At the same time, inflation has steadily chipped away at what the exclusion itself is worth\u2014cutting its real purchasing power roughly in half.<\/p>\n

Capital gains tax exclusion protects less as the asset has gotten more expensiveNational Association of Realtors<\/p>\n

If the exclusion had kept pace with the consumer price index, it would be worth roughly $1.04 million today.<\/p>\n

Kenneth Kies, who was chief of staff of Congress\u2019 Joint Committee on Taxation when the provision was written and has said the exclusion was his idea, acknowledged that flaw earlier this year.<\/p>\n

\u201cObviously, inflation has eroded the value of the benefit,\u201d Kies said in May<\/a>.<\/p>\n

Congress is considering raising the home-sale tax exclusion<\/p>\n

But there is good news. The growing exposure has helped fuel a bipartisan effort to update the limits.<\/p>\n

In April, Sen. Ted Cruz (R-TX) proposed indexing all capital gains to inflation<\/a>\u2014a move that would apply to stocks and other assets, not just primary homes. In June, Rep.\u00a0Nicole Malliotakis (R-NY) proposed a bill that would create a three-year tax holiday for older homeowners<\/a> selling a primary residence they had owned for at least 25 years. And last year, then-Rep. Marjorie Taylor Greene (R-GA) introduced a bill that would have eliminated the tax on primary home sales altogether, in what she described to Realtor.com in an exclusive interview as “a gift to the American people.”<\/a><\/p>\n

The proposal with the most bipartisan momentum is the More Homes on the Market Act<\/a>, introduced by Rep. Jimmy Panetta (D-CA).<\/p>\n

The bill would double the current exclusion limits to $500,000 for single filers and $1 million for married couples filing jointly, while indexing both thresholds to inflation going forward.<\/p>\n

“It\u2019s a practical, bipartisan solution that would help unlock existing housing supply, improve affordability, and allow more Americans to move without facing an outdated tax penalty,” McGahn says. “And it\u2019s the fair thing to do because almost all those paying taxes on home sales today are victims of an outmoded tax code provision driven by inflation. And so are those who are unable to find the homes they need.”<\/p>\n

NAR has made passage of the bill a major legislative priority. According to McGahn, 7,000 Realtors came to Washington during the group\u2019s legislative meetings, and NAR also launched a national call to action in support of the measure.<\/p>\n

The group\u2019s argument is straightforward: The existing exclusion can discourage some long-tenured homeowners\u2014particularly older Americans with substantial accumulated gains<\/a>\u2014from selling.<\/p>\n

\u201cJust like people were locked into their homes at lower interest rates, seniors are often locked in because of the home equity penalty,\u201d NAR President Kevin Brown said during Senate testimony in June<\/a>. \u201cThis legislation expands existing housing stock and gives seniors the opportunity to tap equity that they have counted on for retirement.\u201d<\/p>\n

The latest data now makes those stakes clearer than ever: More homeowners are running up against a tax threshold designed for a very different housing market.<\/p>\n","protected":false},"excerpt":{"rendered":"One in four California home sellers now records more than $500,000 in gains after selling their primary home,…\n","protected":false},"author":2,"featured_media":409272,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[7,9,8,164041,116991,13146,164042,31859,164043],"class_list":["post-409271","post","type-post","status-publish","format-standard","has-post-thumbnail","category-california","tag-california","tag-california-headlines","tag-california-news","tag-capital-gains-tax","tag-daily-email","tag-data-journalism","tag-home-equity","tag-national-association-of-realtors","tag-slot-01"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/posts\/409271","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/comments?post=409271"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/posts\/409271\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/media\/409272"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/media?parent=409271"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/categories?post=409271"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/tags?post=409271"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}