Sell Your House and Pay Zero Tax

A bipartisan bill with 86 cosponsors in the House would double the capital gains tax home sale exclusion from $250,000 to $500,000 for single filers and from $500,000 to $1 million for married couples. That’s the first update to this number since 1997, when the median home in America cost about $125,000.

Lets just sit with that for a second. Congress set this exclusion 29 years ago and never touched it. Not once. Meanwhile home prices nearly tripled. So yeah, a lot of people who bought a house in Austin in 2005 for $200,000 and watched it climb to $550,000 are now staring at a tax bill they never expected right. According to the National Association of Realtors, 29 million homeowners (that’s 34% of all homeowners in America) could already exceed the $250,000 single filer cap today. By 2030 it’s 56%. By 2035 it’s nearly 70%.

Here’s what I’m seeing in my market. I’ve had clients in Bee Cave and Lakeway who bought 15 years ago and legitimately cannot sell without taking a capital gains hit. They’re stuck. Housing economists call it the “stay-put penalty” and it’s real. These are middle-class families who happened to buy in a market that went crazy, not hedge fund managers gaming the system.

So lets talk about what’s actually happening in Congress, what it means for your money, and what you should be doing right now even if none of these bills pass.

The Bill That Actually Has a Shot: The More Homes on the Market Act

The More Homes on the Market Act (H.R. 1340) is the one to watch. It has 86 bipartisan cosponsors in the House, which is a big deal for a tax bill. Rep. Jimmy Panetta (D-CA) is the lead sponsor, with original cosponsors including Rep. Mike Kelly (R-PA), Rep. Maria Elvira Salazar (R-FL), and Rep. Don Bacon (R-NE). That’s not a partisan wish list. That’s real bipartisan momentum.

The Senate companion (S. 3332) landed in December with sponsors including our own Sen. John Cornyn (R-TX), plus Sen. Michael Bennet (D-CO), Sen. Adam Schiff (D-CA), and Sen. John Barrasso (R-WY). When you’ve got a Texas Republican and a California Democrat co-sponsoring the same tax bill, something interesting is happening.

Here’s what it would do:

Current law (Section 121): You can exclude up to $250,000 in capital gains on your primary residence sale if you’re single, $500,000 if you’re married filing jointly. You have to have lived there at least 2 of the last 5 years.

Proposed change: Double those numbers. $500,000 single, $1 million married. And (this is the part that matters long term) index them to inflation going forward so we never end up 29 years behind again.

The bill is currently in the Ways and Means Committee. It was not included in the Big Beautiful Bill that already passed, so it’s still working its way through the process. But 86 cosponsors is serious.

Why the $250,000 Cap Is Absurd in 2026

Ok lets do some Austin math because this is where it gets personal.

Say you bought a home in Bee Cave in 2008 for $325,000. Pretty normal purchase at the time, nothing fancy. Today that home is worth somewhere around $625,000 (and honestly depending on the neighborhood it could be more). That’s $300,000 in capital gains.

If you’re single, you’d owe federal capital gains tax on $50,000. At the 15% rate that’s $7,500. Not the end of the world. But if you bought in Westlake or certain parts of Lakeway where values really took off, you could be looking at $400,000 or $500,000 in gains. Now you’re paying $22,500 to $37,500 in taxes on money you earned by just… living in your house.

And that’s the thing that gets me (and I say this as someone who literally makes a living when people sell houses, so you’d think I’d be less worked up about it). These aren’t investors flipping properties. These are people who bought a home, raised their kids there, and now want to downsize or move closer to family. Benjamin Graham wrote that the intelligent investor’s biggest enemy is usually themselves. But in this case the enemy is a tax code that hasn’t been updated since Bill Clinton was president.

The NAR data backs this up. By 2035 nearly 70% of homeowners could exceed the $250,000 cap, and over 38% could blow past the $500,000 married cap. This isn’t a rich-person problem anymore. It’s a math problem.

The Other Proposals (and Why They’re Less Likely)

There are two other proposals floating around that you’ll see in headlines. I want you to understand them but also understand the difference in how serious they are.

The No Tax on Home Sales Act (H.R. 4327)

Rep. Marjorie Taylor Greene introduced this one. It would eliminate the capital gains tax on home sales entirely. No cap at all. Sounds great on a bumper sticker right.

But it only has 4 cosponsors. And here’s the issue that nobody talks about. When you remove all caps, the people who benefit most are the ones selling $3 million, $5 million, $10 million homes. Analysis from policy researchers shows the benefits skew heavily toward households with $5.7 million or more in net worth. That’s not the family in Dripping Springs trying to downsize. I would argue the More Homes on the Market Act is better policy because it actually targets the middle, which is where the housing freeze is happening.

The Cruz-Scott Inflation Indexing Letter

In March 2026, Senators Ted Cruz and Tim Scott sent a letter to Treasury Secretary Bessent asking him to index all capital gains to inflation through executive action (no Congressional vote needed). The idea is that if you bought a home for $300,000 twenty years ago, your cost basis would be adjusted upward for inflation before calculating your gain. So instead of showing $300,000 in gains on a $600,000 sale, you might only show $150,000.

Sounds reasonable in theory. But here’s where it gets complicated.

The Penn Wharton Budget Model found that 86% of the benefits from indexing capital gains to inflation would go to the top 1% of earners, with 63% going to the top 0.1%. That’s because this doesn’t just apply to homes. It applies to stocks, bonds, business sales, everything. The revenue cost is estimated at $200 billion. And the Office of Legal Counsel issued an opinion back in 1992 saying Treasury probably doesn’t have the legal authority to do this without Congress. Brookings called it “still a bad idea.”

So I wouldn’t hold my breath on this one.

The Honest Counterargument

I should be fair here. Not everyone thinks doubling the exclusion will unlock housing supply. Howard Gleckman at the Urban-Brookings Tax Policy Center told CNBC, “This is going to do next to nothing to solve the supply problem. There are so many other reasons why older people don’t move from their homes.”

And he’s not wrong. People stay in their homes because of emotional attachment, because they love their neighborhood, because moving is a pain (anyone who has packed up a house after 20 years knows what I’m talking about). Tax liability is just one factor.

But here’s my take after 19 years of helping people sell their homes. The tax thing isn’t just about the money. It’s about the feeling of getting punished for something you did right. You bought a house, you maintained it, you built a life there. And now the government takes a chunk because they forgot to update a number from 1997. That feeling keeps people locked in even when the actual tax bill might be manageable. It’s what Kahneman would call loss aversion on steroids. The perceived loss feels twice as painful as any gain from selling.

What Austin Homeowners Should Do Right Now

Whether these bills pass or not, there are things you should be doing today. Especially if you’ve been in your home for 10 or more years.

1. Know your cost basis. This is your original purchase price plus any capital improvements you’ve made. And I mean real improvements, not maintenance. A new roof counts. New kitchen countertops count. Painting the living room does not. Start a spreadsheet. Dig up receipts. Every dollar you add to your basis is a dollar that doesn’t get taxed.

2. Understand what counts as an improvement. The IRS is specific about this. Additions, landscaping that increases value, new HVAC systems, updated electrical, a new deck. These all add to your basis. Keep documentation (before/after photos, contractor invoices, permit records). If you’ve been in your home 15 years you’ve probably spent more on improvements than you realize.

3. Know the 2-of-5-year rule cold. You must have owned AND lived in the home as your primary residence for at least 2 of the 5 years before the sale. If you converted it to a rental or moved out, the clock is ticking. This is one of those things where getting the timing wrong by a few months can cost you the entire exclusion.

4. Run the math before you list. Pull up your original purchase documents, add up your improvements, and calculate your potential gain. If you’re under $250,000 single or $500,000 married, you’re already fine under current law. If you’re over, you know exactly how much exposure you have. We can help with this. Get a current market analysis and compare it to your basis.

5. Don’t wait for legislation to make your move. I’ve seen too many people put their lives on hold waiting for Congress to act. If selling makes sense for your life right now, the timing question is about your personal situation, not about what might happen on Capitol Hill. And if the exclusion does get doubled, great. You might get a nice surprise. But I wouldn’t bet your timeline on it.

6. Talk to a CPA before you list. Not after. Before. There are strategies around timing, partial exclusions, and combining the home sale exclusion with other tax planning that a good accountant can help you optimize. (I have a few I refer clients to if you need a name.)

The Bigger Picture for Austin

Here’s why I think this matters beyond just the tax savings. Austin has a supply problem. We know this. The market forecast shows inventory improving but we’re still not where we need to be. And a big chunk of that missing supply is long-term homeowners who are sitting on massive equity and won’t sell because of the tax hit.

The downsizing conversation I have with empty nesters almost always includes a moment where we calculate the capital gains and they go quiet. That $15,000 or $25,000 or $40,000 tax bill changes the whole equation. It’s not that they can’t afford it. It’s that it feels wrong. You lived in your house for 20 years and now you owe the government because prices went up. That instinct, that gut reaction, is keeping homes off the market.

If the More Homes on the Market Act passes, I think you’d see a real wave of sellers who’ve been waiting. Not a flood, but a meaningful increase in the kind of homes first-time buyers and young families actually need. Three-bedroom houses in established neighborhoods. The ones that barely ever come on the market right now because the owners have no reason to leave.

Lets Talk About Your Situation

If you’re a long-term Austin homeowner thinking about selling, this is the kind of conversation I have every week. The capital gains tax home sale rules are confusing and the legislation is moving fast. I can help you figure out where you stand, what your home is actually worth today, and whether the timing makes sense for you.

No pitch, just math. Reach out to me and lets figure it out together. And as always, be safe, be good, and be nice to people.