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California, Hawaii and Massachusetts Have the Highest Share of Homeowners Who Would Benefit if Capital Gains Tax is Eliminated

Redfin reports 9 out of 10 homes in Anaheim, CA have gained more than $250,000 in value, the most of any major metro

SEATTLE--(BUSINESS WIRE)-- More than one in four (25.9%) U.S. homes have gained at least $250,000 in value since the last time they were purchased, while 8% have gained more than $500,000. That鈥檚 according to a new from , the real estate brokerage powered by Rocket. These are the upper and lower bounds of the potential share of homeowners who stand to benefit if the tax on capital gains from a home sale is eliminated鈥攁n idea currently being floated by President Trump and U.S. lawmakers.

Of the homes which have increased at least $250,000 in value, the median gain is $384,606鈥攔epresenting a potential tax liability of $20,104 (using a 15% tax rate). For homes that have gained at least $500,000 in value, the median gain is $712,986鈥攁 potential tax liability of $31,948.

This is according to an analysis of the current for U.S. homes, compared to their most recent sale price. The analysis provides a high-level estimate of who may benefit from a change in capital gain tax rules on home sales. Please note, however, that tax rules are complex and every homeowner鈥檚 circumstances are unique.

Homeowners pay capital gains tax when they sell homes that have increased in value by at least $250,000

The typical U.S. home has gained $144,543 in value since it was last purchased, meaning owners would not owe any capital gains tax if they sold it today.

That鈥檚 because home sellers who lived in their home for at least two of the past five years can currently exclude up to $250,000 in capital gains from their taxable income as a single filer, or up to $500,000 as a couple filing jointly. Capital gains tax is paid at a rate of 0%, 15% or 20%鈥攄epending on income鈥攚ith most people paying no more than 15%, according to the IRS.

For example, a couple who sells their primary residence for $700,000 more than they paid for it 10 years ago would potentially owe capital gains tax on $200,000鈥攖he amount above the $500,000 exclusion for couples filing jointly. Using a 15% capital gains tax rate, that would project as a potential $30,000 tax bill. (Note: Redfin鈥檚 analysis does not take into account how home improvement costs and other offsets can also potentially reduce homeowners鈥� capital gains tax burden.)

California, Hawaii and Massachusetts have the highest share of homeowners who stand to benefit if capital gains tax is scrapped

The biggest potential beneficiaries of the capital gains tax being eliminated are homeowners who have already built considerable wealth through their property, and they mainly come from states where home prices are high and have increased quickly.

That starts with California鈥攚here the median home value is $766,896 and the typical capital gain of all homes is $332,659. Looking closer, 62.3% of Californian homes have gained at least $250,000 since they were last sold鈥攖he highest share of any state. One in three (33%) have gained more than $500,000.

California homes are more likely to exceed capital gains thresholds partly because homes are more expensive there to begin with. Strong job markets and desirable climates have long kept demand high in multiple areas of the state鈥攑ushing the median price of homes over $1 million in metros like and . On top of that, California鈥檚 Proposition 13鈥攚hich can lock owners into low property-tax rates鈥攈as been a barrier for people to sell their homes. That means Californian homeowners typically stay in their homes than in other areas of the country, giving them more time to increase the size of their capital gain.

Compared to California, Hawaii has a slightly lower share of homes that have gained more than $250,000 in value (61%), but a slightly higher share of homes that have gained $500,000 (34.6%) and a higher overall median capital gain ($338,346).

Massachusetts (58.4%), Washington (54.1%) and New Jersey (52.2%) round out the top 5 states with the highest share of homes that have gained at least $250,000 in value since they were last sold.

More than one in five (20.8%) homes nationally that have gained over $250,000 in value are from California鈥攖he highest share from any state. Next came Florida (12.1%), Massachusetts (7%), Washington (6.9%) and New Jersey (4.8%). California also has more than a third (35.6%) of homes nationally that have gained over $500,000 in value.

鈥淎 lot of baby boomers say they their homes鈥攂ut that mindset could shift if capital gains are taken off the table,鈥� said Redfin Chief Economist . 鈥淲ith the financial barrier removed, more may decide to sell and either downsize or relocate, potentially freeing up housing inventory and putting downwards pressure on home prices. But it鈥檚 important to note that these homes are not starter homes, they are more likely to be million-dollar homes that are out of reach for most homebuyers. The impact of the tax break would also not be felt nationwide鈥攊t would disproportionately benefit wealthier homeowners from coastal states like California. Some states, especially in the South and Midwest, would see far less impact.鈥�

Mississippi, North Dakota and Iowa have the lowest share of homeowners who stand to benefit if capital gains tax is scrapped

In Mississippi, where the median home value is $254,319, only 1.2% of homes have gained $250,000 in value since they were last sold and just 0.1% have gained $500,000. Those are the lowest shares among all states. Put a different way, only one out of every 100 Mississippi homes has gained enough value to cross the capital gains tax threshold for single filers, and virtually no homes have crossed the threshold for couples.

North Dakota, Iowa, Oklahoma and Wyoming round out the five states with the lowest share of homes that have gained enough value to trigger the capital gains tax.

Nine out of 10 homes in Anaheim have gained more than $250,000 in value, leading all major metros

Californian markets dominate the list of major metros where homeowners would benefit most from a repeal of the capital gains tax, taking the top six positions.

In Anaheim, incorporating much of Orange County, south of Los Angeles, nearly nine out of ten (89.4%) homes have gained more than $250,000 in value since they were last sold. That鈥檚 the highest share among the top 50 most populous U.S. metro areas.

Next comes San Jose, where 85.5% of homes have gained at least $250,000 in value and 71.3% of homes have gained at least $500,000鈥攖he latter share leading all major metros. The median capital gain in the tech-driven Bay Area metro is $851,052, also the highest among the major metros.

San Diego, Los Angeles, San Francisco and Oakland round out the top six metros.

In Detroit, only 5.1% of homes have gained $250,000 in value since they were last sold, with just 0.4% having gained $500,000鈥攖he lowest shares among major metros.

Next comes Philadelphia, Indianapolis, San Antonio, TX, and Cleveland.

Single family homes more likely to have gained enough value to trigger capital gains tax

Owners of single family homes are more likely than owners of other property types to benefit if the capital gain tax was removed, with 28% having gained at least $250,000 in value and 8.6% having gained at least $500,000.

In comparison, 15% of townhouses and 13.6% of condos have gained $250,000 in value since last sold.

To view the full report, including charts and additional metro-level data, please visit:

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Angela Cherry

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Source: Redfin