The federal capital gains exclusion on a primary home sale is one of the most generous tax breaks left in the U.S. code: $250,000 for a single filer, $500,000 for a married couple filing jointly. Sell your home for less than that much in gain over your basis, and the IRS does not tax the appreciation. Sell for more, and the overage is taxable as a long-term capital gain — currently as high as 20% federal, before state.
Here is the problem: those thresholds were set in 1997. They have not been adjusted for inflation in nearly thirty years. The median U.S. home price was about $129,000 the year the exclusion was written. Today it is north of $419,000, and in the markets I serve in North Texas, the typical move-up home is well above the national median. The exclusion's real purchasing power has been cut roughly in half while the housing market has more than tripled around it.
New research from the National Association of REALTORS®, published in May 2026, puts a number on the exposure. NAR's economists estimate that 13.1 million U.S. homeowner households — roughly 15% of all owner-occupied homes — now have unrealized gains above the exclusion threshold available to them. That is a more conservative figure than earlier estimates because the new analysis adjusts for filing status. But it is still 13.1 million households who, if they sold today, would owe federal capital gains tax on a portion of their primary home sale.
The headlines from that research focused on coastal metros, and rightly so. In San Jose, 63% of homeowner households are already over the line. In Urban Honolulu it is 54.4%, and in San Diego it is about 54%. Those are extraordinary numbers, and they reflect a specific story: long-tenured owners in markets where decades of ordinary appreciation built the wealth the exclusion was designed to protect, and then kept going.
The story that matters for DFW is different. Boise's exposure rate is 21.5%. Nashville's is 17.7%. Those are the fast-growth Sun Belt and Mountain West markets NAR flagged as "unusually sensitive to what happens next" — places where a single round of recent appreciation has pushed pre-boom buyers up against the threshold in a few years rather than a few decades. DFW fits that profile.
Consider a couple who bought a Plano home in 2017 for $300,000. By every account I have seen and every comparable sale I have closed, a comparable home in the same neighborhood now lists in the $650,000 to $750,000 range. Call it $700,000. That is a $400,000 nominal gain. With married filing jointly, they are under the $500,000 exclusion — but only by $100,000, and that gap can close quickly. Add in closing costs that reduce the realized gain, and the math improves. Add in twenty thousand dollars of unrecorded basis from a kitchen renovation in 2019, and it improves more. Subtract twenty thousand of selling costs that get counted differently than people expect, and it can move against them.
This is why I have started raising the topic at the listing intake conversation rather than at closing. The math is not difficult, but it is not intuitive. Basis is purchase price plus improvements, not just purchase price. Improvements are capital improvements, not repairs. Selling costs and agent commissions reduce the amount realized. The exclusion only applies if you have lived in the home as your primary residence for at least two of the last five years. There are special rules for surviving spouses, for partial exclusions when life circumstances force an early sale, and for owners who have used the exclusion on a prior sale within the last two years.
None of that is tax advice. I am a REALTOR®, not a CPA, and the specific application of these rules to your situation is exactly the kind of question that warrants a thirty-minute conversation with a tax professional before you sign a listing agreement. What I can do is flag the question, help you put together the basis documentation while your transaction is still in the planning phase, and run the comparable-sales math honestly enough that you walk into the CPA's office with a realistic estimate of your gain instead of a guess.
NAR is publicly lobbying to modernize the exclusion. Shannon McGahn, NAR's executive vice president and chief advocacy officer, has framed the case clearly: a tax policy written for the 1997 housing market should not be the policy that governs the 2026 one. Whether or not that reform happens is out of any individual seller's hands. The thresholds that exist today are the thresholds you have to plan around.
If you are a DFW homeowner who bought between 2015 and 2019 and is thinking about a 2026 sale, the right time to have this conversation is now. Not at closing. The right people to have it with are your CPA and an agent who will tell you the truth about your gain instead of telling you what you want to hear. I am happy to be the second one. The first one is up to you.
“A 20% federal hit on $100K of overage is a $20K surprise — and it's avoidable with a little planning.”
