Home Sales Tax Break Gets Unlimited: Bill Removes All Dollar Limits on Principal Residence Profit Exclusion

The aptly named “No Tax on Home Sales Act” is a short, punchy piece of legislation aimed squarely at the IRS code governing home sales. Specifically, it eliminates the existing dollar limits on how much profit (capital gains) a homeowner can exclude from federal income tax when selling their principal residence. Currently, that exclusion is capped—$250,000 for single filers and $500,000 for married couples filing jointly. This bill strikes those limits entirely, making the exclusion potentially unlimited for sales occurring after the bill becomes law (Section 2).

The $500,000 Cap: Gone Forever

What does this mean in practice? Right now, if a married couple bought a home for $300,000 and sold it years later for $1 million, they would have a $700,000 profit. They can exclude $500,000 of that profit from their taxable income, but the remaining $200,000 is treated as a capital gain and taxed. Under this new Act, that entire $700,000 profit would be tax-free, provided it was their principal residence for the required two out of the last five years. For homeowners in high-cost, rapidly appreciating markets—think San Francisco, New York, or even Austin—who have lived in their homes for decades, this is a massive tax break. It simplifies the process by removing the need to track and pay capital gains on profit above the current limits.

Who Benefits from an Unlimited Tax Break?

While this change offers a welcome simplification for many, the biggest beneficiaries are those with the largest gains. For the average American who sells their home with a $150,000 profit, this bill doesn't change much—they were already under the existing caps. But for the small percentage of homeowners selling multi-million dollar properties with profits soaring into the seven figures, this change is huge. It effectively allows the wealthiest homeowners to shield enormous amounts of wealth—potentially millions of dollars—from federal taxation when they sell their primary home. The bill ensures that all related sections of the tax code (like Section 121(c)) are updated to reflect the removal of these limits, smoothing out the technical details for implementation (Section 2).

The Fiscal Trade-Off

This unlimited exclusion comes with a significant trade-off for the federal government. Those excluded profits are tax dollars that the Treasury will no longer collect. Removing the caps means a substantial, permanent reduction in federal tax revenue. This lost revenue must be made up somewhere, either through increased borrowing (adding to the national debt) or through cuts to federal spending programs. Essentially, the fiscal burden of this tax break—which primarily benefits the high-end real estate market—is shifted to the general taxpayer and future generations. While the bill makes the tax filing process easier for the seller, it creates a large fiscal hole that affects everyone else.