More Homes on the Market Act
- Sponsor
- Rep. Panetta, Jimmy [D-CA-19]
- Committees
- Ways and Means Committee (primary)
- Last action
- Feb 13, 2025
Bottom line
This bill aims to reduce the tax burden on homeowners selling their primary residences, particularly in high-cost housing markets, and encourages housing turnover by making it more financially attractive to sell.
What it actually does
H.R. 1340, the 'More Homes on the Market Act,' significantly increases the amount of capital gains from the sale of a principal residence that can be excluded from federal income tax. For single filers, the exclusion rises from $250,000 to $500,000, and for married couples filing jointly, it increases from $500,000 to $1,000,000. The bill also introduces an annual inflation adjustment for these new exclusion amounts, indexed to the cost-of-living.
Proponents argue
Proponents argue that increasing the capital gains exclusion for principal residences will alleviate a significant financial burden for many homeowners, especially those in areas with rapidly appreciating property values. They contend that the current exclusion amounts, last updated in 1997, are outdated and do not reflect the substantial increase in home prices over the past decades. By reducing the tax liability on home sales, this bill could encourage more homeowners to sell, thereby increasing housing supply and potentially easing market pressures, while also making it easier for seniors to downsize or relocate without facing a large tax bill.
Opponents contend
Opponents might argue that this tax cut disproportionately benefits wealthier homeowners who have accumulated significant equity, rather than addressing the core affordability crisis for first-time buyers or lower-income individuals. They may contend that the bill could exacerbate wealth inequality and reduce federal tax revenue without a guaranteed increase in housing supply, as other market factors also influence selling decisions. Critics could also point out that the inflation adjustment mechanism might further entrench these benefits for higher-income individuals over time, while the primary beneficiaries are not necessarily those struggling most with housing.
The bill text is very short and straightforward, making it highly accessible for any reader to understand its direct provisions within minutes.
Section 2. Increase of Exclusion of Gain from Sale of Principal Residence.
Increased Capital Gains Exclusion for Principal Residence Sales
This provision amends Section 121(b) of the Internal Revenue Code of 1986 to double the amount of gain from the sale of a principal residence that can be excluded from gross income. For single individuals, the exclusion increases from $250,000 to $500,000. For married couples filing jointly, the exclusion increases from $500,000 to $1,000,000. This means homeowners can keep more of the profit from selling their home without paying federal capital gains tax.
Supporters argue
Supporters argue that this increase is long overdue, as the current exclusion amounts have not kept pace with housing market appreciation, particularly in desirable urban and suburban areas. They contend it will provide much-needed tax relief to middle-class families and retirees, allowing them to move, downsize, or relocate without being penalized by taxes on their home's appreciation. This could also free up inventory in tight housing markets.
Critics contend
Critics might argue that the primary beneficiaries of this tax cut are wealthier homeowners who have seen the largest gains in home value, rather than those struggling with housing affordability. They may contend that it represents a significant loss of federal revenue that could be used for other priorities, and that its impact on housing supply might be minimal compared to other market forces.
Tradeoffs
The bill balances the desire to provide tax relief to homeowners and potentially stimulate housing market activity against the cost of reduced federal tax revenue and concerns about the distributional equity of such a tax benefit.
The bill introduces an annual adjustment for inflation to the new $500,000 and $1,000,000 exclusion amounts. This adjustment will be based on the cost-of-living index, with 2023 as the base year, and rounded to the next lowest multiple of $100.
Section 2(a)(4), adding new paragraph (5) to Section 121(b) of the Internal Revenue Code of 1986.
Why it matters:This is standard legislative practice for ensuring tax provisions maintain their real value over time, rather than an attempt to obscure the provision.
Case for: Proponents argue that indexing the exclusion amounts to inflation is crucial to ensure the tax relief provided by the bill is not eroded over time by rising home values and general price increases. This maintains the policy's intended effect for future generations of homeowners.
Case against: Opponents might argue that automatic inflation adjustments reduce future legislative flexibility to revisit these tax expenditures and could lead to a continuous expansion of the tax benefit without explicit congressional action, further impacting federal revenue.
Estimated impact: Ensures the real value of the tax exclusion is maintained, potentially increasing the long-term revenue impact compared to a fixed dollar amount.