More Homes on the Market Act: What H.R. 1340 Would Change

The More Homes on the Market Act is a bipartisan bill, H.R. 1340, that would double the federal capital gains exclusion on the sale of a primary residence, raising it from $250,000 to $500,000 for single filers and from $500,000 to $1,000,000 for married couples filing jointly.¹ It would also index those new limits to inflation, something the current caps have never had. The bill was introduced in February 2025 and has not passed. Until it does, the existing $250,000 and $500,000 limits still apply to every home sale.

The Home Sale Exclusion As It Stands Today

Section 121 of the Internal Revenue Code lets you exclude up to $250,000 of gain on the sale of your main home if you file as a single taxpayer, or up to $500,000 if you’re married filing jointly.² Gain here is the sale price minus what you paid for the home, plus qualifying improvements. Anything above the exclusion is taxed as a long-term capital gain.

To claim the full exclusion, you must have owned and used the home as your primary residence for at least two of the five years before the sale, and you can’t have claimed the exclusion on another home within the prior two years. For joint filers taking the $500,000 amount, both spouses must meet the use test, at least one must meet the ownership test, and neither can have used the exclusion in the last two years.

If you sell before hitting the two-year mark, a partial exclusion may still be available if the move was triggered by a job relocation of at least 50 miles, a health issue, or an unforeseen event such as divorce, job loss, or a natural disaster.³ The partial amount is prorated based on how much of the two-year period you actually met.

These caps were set in 1997 and have never been adjusted. If they had tracked home price growth since then, they would sit at roughly $885,000 and $1,770,000 today.

What H.R. 1340 Would Actually Change

The bill does two things to Section 121. It doubles the exclusion amounts to $500,000 for single filers and $1,000,000 for joint filers, and it adds an inflation adjustment so the new figures don’t erode the way the 1997 numbers have.¹

Everything else about the exclusion stays the same. The two-out-of-five-year ownership and use tests remain. The once-every-two-years limit remains. The partial exclusion rules for early sales remain. The change is not retroactive: the higher limits would apply only to sales that close after the bill is signed into law.

Why the Bill Was Introduced

The exclusion caps have not moved since 1997, and home values in many markets have. A homeowner who bought for $150,000 in the 1990s and now holds a home worth $900,000 is sitting on $750,000 of gain. A single filer in that position faces tax on $500,000 of it, and the combined federal bill can run past $100,000 depending on income. In 2023, an estimated 8 percent of home sales produced gains above the $500,000 joint-filer cap, more than double the 2019 share.

Researchers describe this as a tax lock-in effect. An estimated six million older Americans live in homes larger than they need but hold on because selling would trigger a large tax bill. The bill’s premise is that raising the caps releases some of that inventory back into a tight market.

Who Would Actually See a Tax Cut

Most homeowners already owe no capital gains tax when they sell. Research from the Brookings Institution found that roughly 95 percent of all households, and about 90 percent of households aged 65 and older, fall within the current exclusion limits.⁴ For those sellers, doubling the exclusion changes nothing about what they owe.

The tax reduction concentrates at the top. Brookings estimates that about 76 percent of the total tax savings from the higher caps would flow to households in the top 10 percent of income, with nearly one-fifth going to the top 1 percent.⁴ The Congressional Research Service has estimated that capital gains taxes on home sales above the current caps bring in $6 billion to $10 billion a year in federal revenue, much of which would disappear under the bill.

How the Exclusion Interacts With Other Taxes

Any gain above the Section 121 amount is taxed at long-term capital gains rates, which for 2026 are 0, 15, or 20 percent depending on taxable income. The 20 percent rate applies to single filers with taxable income above $545,500 and joint filers above $613,700. Most sellers who owe capital gains tax on a home sale land in the 15 percent bracket.

Higher-income sellers can also owe the 3.8 percent Net Investment Income Tax when modified adjusted gross income exceeds $200,000 (single) or $250,000 (joint).⁵ Gain that’s excluded under Section 121 doesn’t count as net investment income, so raising the exclusion would also shield more gain from the surtax. Those NIIT thresholds are not indexed for inflation.

The Step-Up in Basis Option

Some long-time owners choose to hold the home until death rather than sell. Under Section 1014, an heir’s basis resets to the home’s fair market value on the date of the prior owner’s death, which erases the accumulated gain.⁶ Heirs who sell shortly after inheriting usually owe little or no capital gains tax. Doubling the exclusion narrows the gap for some sellers, but anyone still holding gain above the new caps would face the same choice between selling now and holding for the step-up.

State Taxes Are Separate

H.R. 1340 amends only the federal code. Most states with an income tax also tax capital gains on home sales, and each sets its own rules on whether to follow the federal exclusion. A seller whose gain is fully covered federally can still owe state tax, which matters most in the high-cost coastal markets where the bill would have the biggest federal effect.

Where the Bill Stands

H.R. 1340 was introduced on February 13, 2025, by Representatives Jimmy Panetta (D-CA) and Mike Kelly (R-PA), with more than two dozen bipartisan cosponsors. It was referred to the House Committee on Ways and Means and has not received a hearing or vote.⁷ To become law, it would need to clear committee, pass both chambers, and be signed by the president. The revenue cost is one hurdle, since replacing several billion dollars a year in federal receipts requires either accepting a larger deficit or finding a pay-for.

If it does pass, the higher exclusions and the inflation adjustment would apply to sales closing after the enactment date.¹ For any sale before that date, the current $250,000 and $500,000 limits are what apply. If you’re weighing a sale now with a gain near or above those caps, plan around the existing rules and treat the bill as a possibility rather than a factor.

1
GovInfo. H.R. 1340 (IH) – More Homes on the Market Act
2
Office of the Law Revision Counsel. 26 USC 121 Exclusion of Gain From Sale of Principal Residence
3
Internal Revenue Service. Publication 523, Selling Your Home
4
Brookings Institution. Will Expanding the Capital Gains Exclusion Unlock Housing Supply
5
Internal Revenue Service. Questions and Answers on the Net Investment Income Tax
6
Office of the Law Revision Counsel. 26 U.S. Code 1014 – Basis of Property Acquired From a Decedent
7
Congress.gov. Cosponsors – H.R. 1340 – 119th Congress (2025-2026) More Homes on the Market Act