According to the Federal Reserve, the Silent Generation and Baby Boomers hold nearly $25 trillion in real estate wealth. Over the next 20 years, much of this will be passed to younger generations — often bypassing capital gains taxes entirely due to the “step-up” basis in our tax code.

Here’s the problem: today’s capital gains exemption on the sale of a primary residence is $250,000 per person ($500,000 per couple), an amount unchanged for over two decades. In expensive housing markets — from San Francisco to New York — appreciation has far outpaced that exemption.

Consider this: A home purchased for $200,000 that is now worth $2 million would expose a couple to over $250,000 in federal capital gains taxes if sold during their lifetime. Add in state capital gains taxes — which range from 4–5% in most states and up to 13.3% in California — and the tax hit can be staggering. For seniors who have long since paid off their mortgages, these taxes eat directly into retirement funds.

Meanwhile, if that same home is held until death, heirs receive a step-up in basis to fair market value, allowing it to be sold tax-free. In that scenario, the federal and state governments collect nothing in capital gains revenue.

This mismatch creates a powerful incentive for older homeowners to “age in place” rather than sell. In fact, 75% of adults over 50 say they want to remain in their homes. The result is locked-up inventory, especially family-sized homes in coastal cities, where younger families are struggling to buy.

The Solution: Modernize the Exemption

If Congress raised the exemption to $500,000 per person ($1,000,000 per couple), the benefits would extend far beyond homeowners:

1. Unlock Inventory

   Seniors would be more inclined to sell and downsize, releasing much-needed housing supply in tight urban markets.

2. Boost Retirement Security & Economic Activity

   With less of their equity lost to taxes, seniors would have more cash flow to fund retirement, health care, and consumer spending — strengthening local economies.

3. Increase Tax Revenue Efficiency

   Today, many capital gains taxes are avoided entirely due to the step-up basis. By incentivizing sales during a homeowner’s lifetime, both the federal government and states would actually collect more revenue than they do now.

4. Strengthen Local Communities

   In states like California with Prop 13, long-held homes often carry extremely low property tax bases. When sold, new buyers reset the property tax assessment, giving counties and schools a higher, more sustainable revenue stream.

5. Stabilize Housing Markets

   More homes on the market increases mobility, improves affordability, and provides opportunities for younger buyers. This natural release of supply could help stabilize prices in overheated cities.

Why It Matters

Housing affordability is one of the greatest challenges facing our country. While building new homes is critical, unlocking existing supply is just as important. Updating this outdated tax policy could be one of the single most effective ways to improve housing mobility, reduce generational inequities, and strengthen retirement outcomes for millions of Americans.

A Call to Action

Lawmakers have a unique opportunity to address three major issues at once: retirement security, housing affordability, and tax fairness. Raising the capital gains exemption to $1 million per couple is a commonsense update to a decades-old rule.

It’s a win for seniors, a win for younger families, a win for local governments, and a win for both state and federal treasuries.

The time has come to modernize our tax code so that it reflects the realities of today’s housing economy.