Nearly 26% of U.S. homes have gained at least $250,000 in value since the last time they were purchased, while 8% have gained more than $500,000, according to a report from Redfin, the real estate brokerage powered by Rocket.
In New Jersey, the share of homes that have gained $250,000 in value since they were bought is 52.2%. The share of homes in the Garden State that have gained $500,000 in value since they were bought is 15.4%.
These are the upper and lower limits of the potential share of homeowners who stand to benefit if the tax on capital gains from a home sale is eliminated — an idea under consideration by President Trump and lawmakers. New Jersey is among the five states that have the highest share of homeowners who stand to benefit if capital gains tax is scrapped.
Of the homes which have increased at least $250,000 in value, the median gain is $384,606—representing a potential tax liability of $20,104 by using a 15% tax rate. For homes that have gained at least $500,000 in value, the median gain is $712,986 — a potential tax liability of $31,948.
This is according to an analysis of the current Redfin Estimate for U.S. homes, compared with their most recent sale price. Redfin cautions that tax rules are complex and every homeowner’s circumstances are unique.
Homeowners pay capital gains tax when they sell homes that have increased in value by at least $250,000
The typical U.S. home has gained $144,543 in value since it was last purchased, meaning owners would not owe any capital gains tax if they sold it today. That’s because home sellers who lived in their home for at least two of the past five years can currently exclude up to $250,000 in capital gains from their taxable income as a single filer, or up to $500,000 as a couple filing jointly. Capital gains tax is paid at a rate of 0%, 15% or 20% — depending on income — with most people paying no more than 15%, according to the IRS.
For example, a couple who sells their primary residence for $700,000 more than they paid for it 10 years ago would potentially owe capital gains tax on $200,000 — the amount above the $500,000 exclusion for couples filing jointly. Using a 15% capital gains tax rate, that would project as a potential $30,000 tax bill. Redfin’s analysis does not take into account how home improvement costs and other offsets can also potentially reduce homeowners’ capital gains tax burden.
California, Hawaii, Massachusetts, Washington state, and New Jersey have the highest share of homeowners who stand to benefit if capital gains tax is scrapped.
The median home value in New Jersey is $610,210. The share of homes that have gained $250,000 in value since they were purchased is 52.2%. The share of homes that have gained $500,000 in value since they were bought is 15.4%. The median capital gain for all homes in New Jersey is $260,587.
The biggest potential beneficiaries of the capital gains tax being eliminated are homeowners who have already built considerable wealth through their property, and they mainly come from states where home prices are high and have increased quickly.
That starts with California — where the median home value is $766,896 and the typical capital gain of all homes is $332,659. Looking closer, 62.3% of Californian homes have gained at least $250,000 since they were last sold — the highest share of any state. One in three (33%) have gained more than $500,000.
California homes are more likely to exceed capital gains thresholds partly because homes are more expensive there to begin with. Strong job markets and desirable climate have long kept demand high in multiple areas of the state — pushing the median price of homes over $1 million in metros like Los Angeles and San Francisco.
On top of that, California’s Proposition 13 — which can lock owners into low property-tax rates — has been a barrier for people to sell their homes. That means Californian homeowners typically stay in their homes longer than in other areas of the country, giving them more time to increase the size of their capital gain.
“A lot of baby boomers say they never plan to sell their homes — but that mindset could shift if capital gains are taken off the table,” said Redfin Chief Economist Daryl Fairweather.
“With the financial barrier removed, more may decide to sell and either downsize or relocate, potentially freeing up housing inventory and putting downwards pressure on home prices. Mississippi, North Dakota and Iowa have the lowest share of homeowners who stand to benefit if capital gains tax is scrapped.”
