Trump’s Proposed Capital Gains Tax Reforms Could Impact Housing Market

President Trump is reportedly contemplating adjustments to capital gains tax policies. These reforms include indexing capital gains for inflation and exempting more home sales from taxation. Such measures may positively affect the economy.

Concerns Over Housing Affordability

Many Americans, particularly younger demographics, are increasingly wary about housing affordability. The economic policies of the Biden administration have allegedly diminished the American Dream, partly through reckless spending and stringent energy mandates. These factors inflated costs and affected new home construction. Additionally, high rates of illegal immigration have intensified competition for the limited housing supply.

Consequently, median home prices have escalated by 30%. By 2025, the median age of first-time homebuyers is projected to reach 40. A significant issue here is the shortage, estimated at nearly 5 million units nationwide. High regulatory costs discourage new construction, which contributes to the supply issue. While deregulation could alleviate pricing, the impacts are gradual.

Potential Tax Relief

Removing capital gains tax on home sales might be an immediate solution to enhance supply and offer substantial tax relief to homeowners. Currently, single filers can exclude $250,000 from the profits of a home sale, whereas married couples can exclude $500,000. Since 1997, Congress has not adjusted these exclusion amounts, despite median home prices nearly tripling.

A notable lock-in effect arises with these figures, affecting 34% of homeowners today. Projections suggest this will rise to 70% by 2035. As capital gains tax activates upon sale, many choose to hold properties until passing, eradicating gains through a stepped-up basis. This induces larger homes to remain offline, exacerbating supply deficits and hindering young Americans from becoming homeowners. Raising exclusions and removing the tax could liberate these homes.

Inflation and Tax Burdens

Indexing capital gains for inflation might mitigate asset retention by enabling improved capital allocation and fostering new investments. Such indexing aligns with current tax structures for income brackets, retirement contributions, and Social Security. Tax relief for homeowners, notably those in high-cost states like California and Hawaii, could prove substantial.

Opposition claims these tax cuts reduce government revenue are not supported by historical data or economic reasoning. High tax rates and inflation discourses suppress asset turnover. For instance, after Congress reduced the capital gains rate in 1981 from 28% to 20%, revenue doubled within the subsequent four years.

Proposals and Prospects

Critics might label these tax policies as benefiting the affluent; however, they largely provide relief to Americans burdened by inflation—especially those owning homes long-term. In states with high living costs, current caps affect a significant percentage of homeowners.

Ultimately, Trump’s proposed reforms aim to bolster the economy by rejuvenating the housing market, reducing costs, and releasing capital for growth initiation. The Trump administration seeks to further its economic agenda following steps like the Working Families Tax Cuts.

Michael Faulkender serves as co-chairman of the America First Policy Institute’s Center for American Prosperity and is a former deputy Treasury secretary. All rights reserved. © 2026 Nexstar Media Inc.