How about a tax credit to HOME SELLERS to help the housing crisis

[Jesse Brewer]

Our elected leaders have the unique opportunity to not only help small businesses, keep industries working, combat inflationary pressures in the housing markets and at the same time make housing more affordable for millions of Americans.

Several factors contribute to the tight housing market, each influencing the others in a cycle of cause and effect. One of the biggest challenges today is the reluctance of homeowners to sell, which limits the available inventory. As a result, the few homes on the market command higher prices due to basic supply and demand dynamics.

Many homeowners hesitate to sell despite potential profits, as replacing their home would be significantly more expensive. According to the U.S. Census Bureau, over 61% of Americans have mortgages, with 60% of them locked into fixed 30-year rates below 4%. This has led to what’s commonly called “interest rate jail,” where homeowners are reluctant to trade their low rates for higher ones in today’s market.

With over 79% of people aged 65 and older owning homes—and 10.5 million of those carrying mortgages—interest rate "jail" is a significant issue for this demographic. Many would downsize if not for high mortgage rates, making it crucial to introduce incentives. Potential solutions include federally backed loans with lower rates or tax incentives to help offset the cost of a new mortgage, encouraging these homeowners to sell to new owner-occupants.

While not as widely discussed as interest rates, capital gains taxes also impact home sales. Homeowners who sell their primary residence must pay taxes on profits exceeding $250,000 (or $500,000 for married couples). Although this affects just under 8% of homeowners—up from 2% a few years ago—it poses an even greater challenge for small landlords. Those who own and rent out single-family homes, duplexes, triplexes, and quadplexes, which buyers could purchase with FHA loans, face capital gains taxes on all profits. Federally, this tax is about 17%, with state rates varying from 4.5% in Kentucky to as high as 14% in California.

For perspective, a property owner in California making a $100,000 profit on a home sale would pay over $17,000 in federal taxes and $14,000 in state taxes, totaling $31,000. In Kentucky, the same seller would owe $17,000 federally and $4,500 to the state, for a total of $21,500. These high taxes discourage property owners, especially those who have held their properties for many years.

While efforts have been made to address this issue, it's time for a fresh, common-sense approach to housing affordability.

Instead of penalizing property owners, we should incentivize them to sell by eliminating federal capital gains taxes and offering tax credits for sales to owner-occupants. This would increase housing supply, helping to lower costs while promoting homeownership—a key goal for municipalities nationwide.

With more homes available, renters could transition to homeowners, giving them a stronger stake in their communities and the opportunity to build wealth. Research shows that 36% of U.S. households rent, and 35% of those—approximately 14 million—live in single-family homes. Encouraging property owners to sell these homes to renters could not only reduce housing costs but also revitalize communities, particularly in underserved areas, by fostering pride of ownership and long-term neighborhood investment.

Homeownership remains the greatest wealth-building tool for Americans, and policies that support this transition could have lasting economic and social benefits.

Jesse Brewer is a local county commissioner in Boone County Kentucky and has been serving his constituents for 6 years. In addition to public Service Jesse Brewer is a real estate broker with over 20 years’ experience in dealing with rental properties both as an owner / manager, but also as a broker selling them. He has written numerous articles and blogs on the housing crisis.