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or millions of families, homeownership serves as a vital financial safety net. As property values appreciate over time, so does the potential for accumulating wealth through housing equity and long-term gains. From a tax planning perspective, homeownership offers significant advantages due to federal income tax provisions that provide substantial benefits.

    Homeowners can exclude up to $500,000 in capital gains ($250,000 for individual filers) from the sale of their primary residence from taxation. Additionally, they can deduct eligible costs and expenses incurred during property ownership, including buying, selling, and improving properties. This means that as long as the gain (or net gain) falls below the exemption thresholds, the sale doesn't need to be reported to the IRS.

    In contrast, other financial investments like stocks, bonds, and mutual funds are typically taxed at rates of 15 or 20 percent, depending on taxable income levels. The surge in property values during the pandemic era has led to a growing number of homeowners facing potential tax implications, particularly in high-cost markets like California, Hawaii, and New York.

    A recent bill introduced by Rep. Marjorie Taylor Greene aims to eliminate capital gains taxes on primary residence sales, potentially easing financial burdens for middle-class families and seniors who have lived in their homes for decades. To understand the impact of this bill on Texas homeowners, let's examine the state's housing market trends.

    The pandemic housing boom has led to a dramatic increase in home prices, with typical homeowner capital gains soaring in 2021 and 2022. Homeownership returns peaked at around $133,000 in 2022 and have since tapered off as interest rates cooled the market. By mid-2025, the median capital gain from home sales remains at a record high of $109,000.

    Homeowners in relatively affordable markets like Texas rarely exceed the joint exemption threshold due to the generous provisions of the 1997 Tax Reform Act. However, the surge in property values during the pandemic era has led to potential tax consequences for a growing number of homeowners. Figure 2 shows gross capital appreciation, with eligible costs related to purchasing, selling, and improving property deducted.

    Prior to the pandemic housing boom, only a tiny fraction of home sales in Texas yielded capital gains high enough to exceed the federal exemption threshold. In 2021 and 2022, however, the number of such sales increased significantly, with 4,239 (2.1 percent of total sales) exceeding the exemption limit in 2021 and 5,700 (3.4 percent) in 2022.

    The disparity in capital gains between high-priced properties and modest homes is striking. High-priced properties can accumulate capital gains far more rapidly due to their higher appreciation rates and shorter ownership tenures. Figure 3 categorizes the number of home sales exceeding the exemption limit into four groups based on initial purchase price, showing the median homeownership duration at the time of sale and their proportion within overall sales.

    Modest homes (initially acquired for under $300,000) represent 12.4 percent of overall home sales with gross capital gain exceeding the joint-filing exemption limit. Homeowners in this category typically held their properties for more than 18 years, with median capital gains of $647,800. Million-dollar homes, on the other hand, account for 22.1 percent of exemption-exceeding sales and had a shorter median ownership tenure of just 7 years, generating typical capital gains of $1.05 million.

    The views expressed in this article are those of the authors and do not imply endorsement by the Texas Real Estate Research Center or Texas A&M University.