Congress Wants to Hand Orange County Homeowners a Bigger Tax Break

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If you have owned your home in Orange County for a decade or more, there is a good chance your equity has quietly outgrown a tax rule that has not changed since 1997. That is the year Congress first set the capital gains exclusion on the sale of a primary residence at $250,000 for single filers and $500,000 for married couples filing jointly. Nearly three decades later, home values across the country, and especially here in Southern California, have far outpaced that threshold, leaving many longtime owners facing a surprise tax bill the moment they decide to sell.

A bipartisan proposal called the More Homes on the Market Act aims to fix that. The bill would double the current exclusion to $500,000 for single filers and $1 million for joint filers, and it would index those amounts to inflation going forward so the same gap does not open up again in another twenty years.

The Numbers Behind the Push

The National Association of Realtors has been the loudest voice behind this legislation, and the data explains why. Roughly one in three homeowners, close to 29 million households nationwide, has built up more equity in their primary residence than the current exclusion protects. NAR estimates that nearly 13 million homeowners would owe capital gains tax today if they sold their homes right now. In a market like Orange County, where median home values sit well above the national average, that statistic likely understates how many local sellers are affected.

Had the original 1997 thresholds simply kept pace with inflation, the single filer exclusion would sit closer to $461,000 today, and the married filer exclusion would be near $923,000. Instead, the numbers have stayed frozen while home prices climbed, quietly turning a benefit meant to reward homeownership into a penalty for staying put too long.

Momentum Is Building in Congress

The bill has picked up real traction this year. It now counts support from about 151 House members and 23 Senators, representing roughly one in three voting members of Congress plus several nonvoting delegates. The House and Senate versions are nearly identical, differing only in how they handle indexing the exclusion to inflation going forward, so the two chambers will need to reconcile that detail before a final bill can move forward. Recent co-sponsors have crossed party lines, a sign that lawmakers on both sides increasingly see this as a housing supply issue rather than a partisan one.

How This Could Free Up Inventory

For years, real estate economists have pointed to a phenomenon often called the lock-in effect. Longtime owners, particularly those who bought decades ago and have watched their equity multiply, are reluctant to sell because a large chunk of their profit would go straight to the IRS. That hesitation keeps move-up buyers, downsizing retirees, and empty nesters from listing homes that would otherwise be perfect for growing families entering the market.

Supporters of the bill argue that raising the exclusion limits would give these owners room to sell without a punishing tax hit, which in turn could loosen up inventory in a market that badly needs it. For Orange County, where available listings have remained tight for years, even a modest increase in the number of homes changing hands could ease competition and give buyers more options.

What This Means If You Are Thinking About Selling

If you have owned your Orange County home for many years, it is worth having a conversation about where your equity actually stands relative to the current exclusion limits, and how a change in the law could affect your timing. Selling sooner rather than later might make sense under today's rules, but if this legislation moves forward, waiting could put more of your profit in your pocket instead of the government's.

Either way, understanding your numbers now puts you in a stronger position to make the right call when the time comes.

Bottomline

Tax policy in Washington moves slowly, but the conversation happening in Congress right now could reshape what selling your home looks like for years to come. Whether you are sitting on decades of equity and wondering what a sale means for your bottom line, or you are searching for your next home in a market that could use more inventory, having the right guidance matters. If you are considering buying or selling in Orange County, I would love to help you think through your options and make a plan that fits your goals. Reach out to Whitestone Real Estate, and let's talk about what is next for you.

Reference: Navera T. (2026). Bill to double capital gains tax exclusion picks up momentum in Congress. Realtor.com.