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capital gains tax on home sales is discouraging Americans from selling valuable properties, exacerbating a shortage of family-sized homes on the market. Some older homeowners are reluctant to sell due to the tax burden, which can be significant.

    Joel Friedman and his wife Kathryn, both 71, have delayed downsizing their five-bedroom California home because they don't want to pay the capital gains tax on its sale. They're relying on the profits from their future home sale to fund their retirement. Many homeowners in similar situations are holding onto their valuable properties, contributing to a shortage of family-sized homes.

    There's bipartisan support for reforming or eliminating the tax to boost housing inventory. President Donald Trump has considered entirely eliminating the capital gains tax on home sales to help stimulate the housing market. Some lawmakers have introduced bills to increase the tax exclusion or index it to inflation.

    About 34% of America's homeowners could exceed the $250,000 cap for single filers if they were to sell their homes, and 10% could exceed the $500,000 threshold. Increasing the threshold or eliminating the levy altogether could boost housing inventory by incentivizing homeowners to sell. However, some economists are skeptical that it would make a significant difference.

    Mary Ellen Taylor, 75, is one of those homeowners who would like to downsize but is staying put due to the capital gains tax. She argues that the policy incentivizes boomers to hold onto their large homes when they should be selling them to families. A bipartisan issue with complicated impacts, reforming the tax could have big unintended consequences, such as putting upward pressure on home prices or disproportionately benefiting higher-income Americans.

    Despite support for reform, some experts worry that eliminating the capital gains tax would further skew the US tax code in favor of wealthier people and cost the federal government in lost revenue.