A new legislative proposal under consideration in Congress would let Americans over 65 exclude up to $1 million in capital gains from taxation when selling their homes, doubling the current exclusion limit.
The existing rule allows homeowners of any age to exclude $250,000 in capital gains ($500,000 for married couples filing jointly) from federal taxes on primary residence sales. The proposed bill would raise that threshold to $1 million specifically for sellers aged 65 and older.
This change targets older Americans who built substantial home equity over decades of ownership. Someone who bought a house for $200,000 in 1990 and sells it today for $800,000 realizes $600,000 in gains. Under current law, that seller owes taxes on $350,000 of those gains (assuming single filer status). With the new proposal, a 65-year-old could shield the entire $600,000 from capital gains taxation.
The timing matters. Many retirees downsize their homes to access accumulated equity for retirement living expenses, healthcare, or relocation. A higher exclusion reduces the tax hit on this common financial move and leaves more money in retirees' hands.
The proposal reflects bipartisan interest in easing tax burdens for older Americans, though passage remains uncertain. Congress regularly considers targeted tax breaks for seniors, and this one appeals to older homeowners who benefited from real estate appreciation, particularly those who purchased property decades ago in appreciating markets.
Current law already provides generous treatment of home sale gains compared to other investments. Long-term capital gains face maximum federal rates of 20 percent, but the primary residence exclusion eliminates taxation entirely for many homeowners.
The bill's prospects depend on broader tax legislation priorities and deficit concerns. Expanding exclusions reduces federal revenue, which budgeteers must offset with other tax increases or spending cuts.