Overview
Homeownership may no longer be a fluid wealth-building tool.
- Significant home price appreciation (147% over 15 years) has pushed many sellers past the federal capital gains tax exclusion limits ($250k single / $500k married).
- This trapped equity is coinciding with reduced market mobility and a rise in property inheritances.
- Increasing capital gains taxes could discourage mobility, delay downsizing, or complicate retirement timing.
Homeownership may no longer protect wealth the way it has historically. While American homeowners are wealthier than ever on paper, their home equity remains largely trapped. If they do liquidate that wealth, they pay a premium to do so.
Cotality analysis shows that about one in 12 sellers now pay capital gains tax on profits from selling a primary residence. That’s a seven-percentage point jump from the early 2010s.
Existing homes sales where capital gains exceed $500,000*
Data source: Cotality, 2026
Home values have been rising steadily for years. The average price of a home is 147% higher than 15 years ago. In some markets, prices have tripled, prompting many homeowners to cash in. But the tax code may be giving them pause.
The trillions of dollars in home value gained since 2020 are concentrated in high cost of living areas where taxes can erode a significant portion of that earned equity. When someone sells their primary residence, they don't need to pay taxes on the first $250,000 (for single filers) or $500,000 (for married couples) of profit. For many places in the U.S., home sales profits far exceed those limits.
In California, a full quarter of homeowners make profits well beyond the $500,000 capital tax gain limit. In Colorado, it’s 11% of sales. In Florida, 7% of homeowners see profits of more than half a million dollars. The tax bills that accompany these gains can be substantial.
Where are most homeowners paying capital gains taxes?
Data source: Cotality, 2026
“The threat of such a hefty tax bill could discourage mobility, delay downsizing, or complicate retirement timing,” said Cotality Principal Economist Archana Pradhan. “This is especially true for owners whose incomes never matched the wealth they have on paper. They’re house rich, but cash poor and may not have the means to pay the price of extracting that profit.”
Hand me down housing
Rather than paying those taxes, some homes are passed along through inheritance. Cotality analysis showed that a record 7% of all property transfers came through inheritance. In California, where 25% of homes sold require owners to pay capital gains taxes, homes are inherited at twice the rate seen in the rest of the country.
If the number of homes that are inherited grows, it could have an outsized effect on the national property market.
When a home is inherited, the transaction skips around real estate agents, lenders, and even regional governments. In some states, inherited homes come with a reduced property tax bill — a boon for owners on the surface, but it could erode tax bases and the public services they fund. Homes that pass from one generation to the next generally have paid off mortgages. This can make homeownership possible, but for some, ancillary home costs can be so high that keeping even an inherited property remains out of reach.
In our From House to Home survey, we uncovered that the total cost of homeownership was higher than many younger buyers anticipated.
“It surprised me how expensive not just the house is, but the maintenance and many inconveniences you have to account for,” a Gen Z buyer told us in the survey.
Insurance premiums are increasing monthly payments, property taxes are turning into second mortgage payments, and now equity is trapped in homes.
An idle economic engine
The wealth is there, but it's dormant. Debt anxiety, a soft job market, and refusal to jeopardize low fixed-rate mortgages are creating hesitation. Then, when people do sell, it has a cost.
The traditional model is faltering, and unrelenting affordability pressures contributed to 46% of all recent homebuyers saying that buying a home is a stressful process. To unstick the market, people need confidence. Confidence is established through guidance.
“The challenge with homebuying is that it’s not something that most people do very often,” says Cotality’s Chief Data & Analytics Officer John Rogers. “So, by wrapping technology with human guidance, we can offset the lack of familiarity with trust because these professionals are familiar with the data and systems, allowing them to signal potential pitfalls or opportunities to help buyers make the right decisions.”
* The 12 non-disclosure states are Texas, Wyoming, Kansas, Mississippi, Louisiana, Alaska, New Mexico, Utah, North Dakota, Missouri, Montana, and Idaho.
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