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| Joel Friedman and his wife, Kathryn, are reluctant to sell their home and pay significant capital gains taxes. Courtesy of Joel Friedman |
Joel and Kathryn Friedman, both 71, have spent years preparing for a simpler, quieter life in a 55-plus community. But their plans to downsize from their sprawling five-bedroom, 5,000-square-foot home in Southern California are on hold because of a staggering $700,000 capital gains tax bill looming over their sale.
Despite being ready to move on, the Friedmans are part of a growing class of older homeowners stuck in a state of limbo eager to sell but discouraged by outdated tax laws that haven’t been adjusted for inflation or soaring real estate prices in decades.
A Tax Law Stuck in the 1990s
Under current IRS rules, couples filing jointly are allowed to exclude only $500,000 in profit from capital gains taxes when they sell their primary residence. That threshold, set in 1997, has not increased since despite massive home appreciation across the U.S., especially in high-cost states like California.
For the Friedmans, that means a tax hit on roughly $2 million in profit. After exemptions, Joel calculates that they’d owe more than $700,000 in combined federal and California state capital gains taxes including over $400,000 to the IRS and another $200,000-plus to the state.
“It’s a sizable chunk of change for anybody,” Joel said. “We’re not going to be destitute, but it does help to have the extra cash.”
Their home, built in 1990 on land they purchased themselves, has appreciated significantly over three decades. Joel estimates they’ve invested $1.8 million total in the property between the land, construction, and home improvements. Today, they believe they could sell it for around $4.5 million.
Delaying a Sale for Legislative Hope
In May, the Friedmans finally put their home on the market, testing the waters with a $4.5 million listing. But just weeks later, renewed discussions in Washington D.C. caused them to pause.
In July, former President Donald Trump floated the idea of eliminating the capital gains tax on home sales aligning with a new bill from Rep. Marjorie Taylor Greene. Around the same time, support was building for a competing proposal from Rep. Jimmy Panetta, which would double the current exemption and index it to inflation.
Seeing renewed momentum, Joel and Kathryn let their listing expire hoping for change before making a final decision.
“At the moment, it’s a disincentive to put my house on the market,” Joel said. “And if you can afford to wait, it makes sense to take it off the market.”
Tax Reform Could Unlock the Housing Market
Housing experts say situations like the Friedmans’ are becoming more common especially in hot real estate markets. As home values soar, more long-term homeowners find themselves facing tax bills they weren’t expecting.
“Many homeowners are sitting on homes that are worth far more than they ever anticipated,” said Evan Liddiard, director of federal tax policy at the National Association of Realtors (NAR). He believes the Friedmans’ bill could exceed $800,000 depending on their exact basis and appreciation.
NAR has long advocated for reform, arguing that outdated capital gains limits are hurting supply and keeping much-needed inventory off the market particularly larger homes that would appeal to growing families.
“Reducing the tax burden would have a significant impact on inventory and affordability,” Liddiard said. “It’s not a cure-all, but it would help.”
He points to Panetta’s bill which would raise the exclusion limit to $1 million for married couples and $500,000 for single filers as a sensible solution with bipartisan appeal.
Not Just a California Problem, But a National Trend
While reform would disproportionately benefit states with high home values, such as California, the implications are national.
The number of baby boomers delaying downsizing has been rising contributing to a logjam in housing markets, especially in suburban and affluent metro areas. Younger families looking for move-up homes are finding limited options. Meanwhile, older owners like the Friedmans are stuck in oversized properties they no longer need burdened by maintenance, rising property taxes, and high utility costs.
“We’ve got a million reasons to move,” Joel said. “But we’re just not going to do it while the tax is this burdensome.”
The Stakes Are Rising for Retirees
For retirees like the Friedmans, who are no longer earning income from full-time work, the stakes are even higher. While Joel receives Social Security and Kathryn draws a pension, the couple had planned to use the profit from their home sale to bolster their retirement fund and cover potential healthcare and long-term care costs in the years ahead.
Without a more favorable tax structure, they and many others are left in a holding pattern.
“We're financially stable,” Joel said, “but losing nearly a third of our gains to taxes feels punitive, especially after holding the property for so long.”
A Market Shift Hinges on Congress
Whether Congress acts remains uncertain. While eliminating the tax entirely may be politically difficult, housing advocates see Panetta’s reform bill as a practical compromise that would offer real relief to millions of Americans.
With bipartisan interest growing, and attention from both Republicans and Democrats plus backing from Trump himself the issue is gaining momentum.
For now, the Friedmans and thousands like them are watching and waiting hopeful that one of the most consequential tax laws for homeowners gets a much-needed update.
