California Homeowners Could Get Huge Tax Relief: Trump's Capital Gains Proposal Sparks Opportunity
How Potential Changes to Home Sale Capital Gains Tax Could Reshape California Real Estate
President Trump has proposed eliminating federal capital gains taxes on the sale of primary residences, which would significantly benefit homeowners in high-cost regions like California—and could drive policy shifts nationwide. For real estate investors and homeowners in the Golden State, this idea opens up new possibilities—and fresh considerations.
At Fertig and Gordon, our team tracks critical policy changes that affect California home equity, real estate investment strategy, and market liquidity.
How Capital Gains Tax on Home Sales Works Today
Under current federal law, homeowners may exclude up to $250,000 (single) or $500,000 (married couples) of gain from home sale taxes if they’ve lived in the property for at least two out of the last five years.
But in California, combined state and federal taxes on gains exceeding those thresholds can reach up to ~33%, due to California taxing capital gains as ordinary income at rates up to 14.4%.
Experts estimate that up to 37% of U.S. home sales with gains over $500,000 came from California—despite California making up only 10% of total sales nationwide
The “Lock-In” Effect and Market Stagnation
High capital gains liabilities are discouraging long-term California homeowners from selling, which is limiting housing supply. Many are choosing to stay put—even in homes that no longer meet their needs—because selling triggers significant taxes. Instead, they plan to pass their homes to heirs and benefit from a step‑up in basis, which eliminates capital gains tax liability upon death.
This contributes to lower home turnover and escalating prices in markets like San Francisco and Silicon Valley, where median homeowner tenure now exceeds 17–18 years, among the longest in the U.S. (San Francisco Chronicle).
What Trump’s Proposal Could Mean for California Real Estate
1. Greater Mobility for Retirees and Down‑sizers
Boomers and older Californians holding highly appreciated homes may finally have an incentive to downsize, freeing up larger single-family homes to buyers and younger families.
2. Increased Housing Supply
With more homeowners willing to sell, inventory—especially in entry-level and family-sized homes—could rise, potentially helping curb affordability pressures.
3. Shift in Buyer Market Dynamics
For investors and developers, previously stagnant markets could become more active, offering new opportunities in resale and build-to-rent strategies.
Tax Strategy Considerations for California Sellers and Investors
— Know Your Exclusion Limits
Understand how the $250K/$500K homeowner exclusion applies to you—and plan for gains beyond those limits.
— Regional Tax Rate Variance
California taxes capital gains at the same progressive rates as income, up to 14.4%—so even partial gains above federal thresholds carry substantial tax exposure.
— Step‑Up Basis & Inheritance Planning
Passing property to heirs elevates the cost basis to current market value, effectively eliminating built-up taxes on appreciation—an important tool in wealth transfer planning.
— Consider 1031 Exchanges
Real estate investors may defer gains by reinvesting proceeds into like-kind investment properties—though primary residences do not qualify for 1031 treatment.
How Fertig & Gordon Helps Navigate Capital Gains Strategy
At Fertig and Gordon, we guide clients through complex tax and investment scenarios including:
Home sale planning in high-value California markets
Portfolio optimization amid shifting capital gains rules
Equity unlocking for downsizing, divorce settlements, and retirement
1031 exchange structuring for investment real estate
Whether you're advising clients on minimizing tax burdens or evaluating when to sell, our insights anchor strategy in a changing policy landscape.
Key Takeaways for California Homeowners and Investors
Topic What It Means Capital Gains Reform Possible elimination or expansion of current exclusions could unlock housing inventory. Current Tax Burden Gains beyond exclusion limits may be taxed up to ~33% (Federal + CA). Lock‑In Effect Long-term homeowners are delaying sales to avoid trigger events. Strategic Planning Use exclusions, step-up basis, and 1031 exchanges to manage or defer taxes.
Make Smarter Real Estate Moves in a Changing Tax Landscape
President Trump’s proposal to eliminate capital gains tax on home sales could create meaningful leverage for California sellers, retirees, and investors. But navigating exemptions, exclusions, and state-specific tax dynamics requires precision.
At Fertig and Gordon, we specialize in designing real estate strategies that capitalize on policy shifts—transforming incentives into opportunity for you or your clients.
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