The Tax Keeping Long Island Homes Off the Market

Congress set the capital gains exclusion on a primary residence in 1997, when the national median home price was $129,000, according to the National Association of Realtors. A single filer could shelter $250,000 of profit from federal tax. A married couple filing jointly could shelter $500,000. Those two numbers were never indexed to inflation, and they have not moved since — through two housing booms, one collapse, and a recovery that pushed the median single-family sale price across the OneKey® MLS service area to $800,000 in July 2026.

The arithmetic has quietly turned against the people the provision was written to protect. A bipartisan bill now moving through both chambers would double the thresholds and index them going forward. For Long Island sellers who have owned the same house since the Clinton administration, it is the single piece of federal legislation most likely to change what a sale actually nets.

What the More Homes on the Market Act Would Do

Two nearly identical bills carry the name. The House version, H.R. 1340, was introduced by Rep. Jimmy Panetta of California in February 2025 and sits with the Ways and Means Committee. The Senate companion, S. 3332, introduced by Sen. John Cornyn of Texas, was referred to the Finance Committee in December 2025.

Both would raise the Section 121 exclusion from $250,000 to $500,000 for single filers, and from $500,000 to $1 million for married couples filing jointly. Both would then index those figures to inflation so the erosion does not repeat. The versions differ on one technical provision governing how that indexing is calculated, which means the chambers would need to reconcile a final text before anything reaches the president.

Support has been building steadily. Realtor.com reported on August 17, 2026 that 154 House members and 23 senators now back the legislation — roughly one in three voting members of the House. Seven co-sponsors signed on around the August recess alone, including Rep. Patrick Ryan of New York.

One detail matters enormously for anyone timing a sale: the bill applies to sales and exchanges occurring after the date of enactment. It is not retroactive. A closing that happens the week before a signature gets the old numbers.

Why the 1997 Cap Lands Hardest on Long Island

Long tenure plus sustained appreciation is the formula that produces a taxable gain, and the North Shore has both in abundance. NAR estimates that more than 13 million homeowners nationally would exceed today’s exclusion if they sold, and that roughly one in three — close to 29 million households — has built more equity than the single-filer threshold protects. HousingWire reported that NAR projects the figure climbing to 59 million homeowners, or about 70 percent, by 2035.

Consider the mechanics without inventing a property. The exclusion applies to gain, not to sale price, and gain is what remains after subtracting cost basis — the original purchase price plus qualifying capital improvements — and selling costs from the amount realized. A married couple with an adjusted basis of $250,000 who nets $1.1 million at closing has a gain of $850,000. Under the current cap, $350,000 of that is exposed to federal capital gains tax. Under the proposed cap, none of it is. That figure is illustrative arithmetic only, not a market observation, and every real situation turns on documentation and filing status.

New York compounds the exposure. Unlike the federal code, New York State does not apply a separate preferential rate to long-term capital gains, a point covered in detail by the Caplicki Home Team’s 2026 analysis of the same legislation. Add the 3.8 percent federal net investment income tax where applicable, and a six-figure gain above the cap can generate a bill large enough to end a conversation about downsizing before it starts.

What Lock-In Looks Like in Practice

Inventory is the visible symptom. Across the OneKey® MLS service area in July 2026, only 4.1 months of supply were available, single-family homes sold in a median of 40 days, and closings landed at 102.1 percent of original list price. Homes that reach the market move. The problem is how few of them reach it.

Kevin Brown, NAR’s president, framed the mechanism in June congressional testimony reported by Realtor.com: seniors are locked in by a home equity penalty in much the same way other owners have been locked in by low mortgage rates. Owners who want to downsize run the tax math, see the number, and stay. The house that would have gone to a growing family stays occupied by two people who no longer need the square footage.

Other Long Island practitioners have described the same paralysis from a different direction. Writing about seller hesitation in Suffolk County this summer, the Haydon Team observed that “the fear of a crash is doing more damage than an actual crash would.” Tax exposure works on the same psychology, except the fear is grounded in a real number rather than a headline. That distinction is what makes the legislative question worth watching rather than dismissing.

The tension between wanting to move and calculating what moving costs was covered in The Lock-In Effect: Why North Shore Inventory Is So Tight Right Now, which examined the rate-driven version of the same freeze. The tax-driven version has been the quieter of the two, and it does not resolve when rates fall.

Five Things Long-Tenured Sellers Can Do Before Anything Passes

None of these depend on Congress. All of them are worth handling with a CPA or tax attorney rather than alone.

Reconstruct the cost basis. Capital improvements made over decades — an addition, a full kitchen, a roof, a finished basement, a bulkhead — add to basis and reduce taxable gain. Selling costs come off as well. Owners who kept receipts routinely lower their exposure by meaningful amounts. Owners who did not often pay for the gap. Anyone who has been in a house since the 1990s should start pulling permits, invoices, and contractor records now rather than during attorney review.

Confirm the ownership and use tests. The exclusion generally requires having owned and lived in the home as a principal residence for at least two of the five years ending on the sale date. The months need not be consecutive. For owners who have moved elderly parents into the property, converted part of it to a rental, or spent long stretches elsewhere, the answer is less obvious than it looks.

Understand the surviving spouse window. A widowed seller may still claim the full joint exclusion if the sale closes within two years of the spouse’s death, and a step-up in basis on the deceased spouse’s share can substantially reduce the gain. Timing here is unforgiving, and it is the single most common piece of the code that goes unmentioned until it has expired.

Model the sale year, not just the sale. Federal long-term capital gains rates are tied to taxable income for the year. For a retiree with a low-income year available, the difference between closing in December and closing in January can be material.

Get the number before making the decision. Ruling out a move based on an estimated tax bill, without having run the actual basis and exclusion math, is the most expensive assumption in this category. Plenty of owners who assume they are exposed are not. Some who assume they are fine discover otherwise at contract.

This is for informational purposes only — consult a licensed attorney or financial advisor for your specific situation. Nothing above is tax advice, and Section 121 outcomes turn entirely on individual facts.

What the Bill Would Not Fix

Doubling the exclusion does not eliminate the tax. Gains above the new thresholds remain fully exposed, and on the North Shore, waterfront and Gold Coast–adjacent properties held for forty years can clear $1 million in gain without difficulty. New York State treatment does not change either; the bill is federal, and state liability sits on top regardless.

Nor is passage assured. The cost is the obstacle. A congressional analysis cited by Realtor.com put the revenue reduction at $46.4 billion, with a narrower version limited to owners over 55 still costing $4.9 billion. Panetta has acknowledged the price tag as the central hurdle. A competing measure, the No Tax on Home Sales Act (H.R. 4327), would remove the cap on a primary residence entirely and has drawn far less support, which complicates the coalition rather than strengthening it.

Advocates point to the bipartisan housing package that became law earlier this year as evidence that consensus legislation can still clear both chambers. That is a reasonable read of the political weather. It is not a timeline.

The Decision That Actually Faces a Seller Right Now

Waiting on Congress is a strategy with no defined endpoint and no guarantee. Selling into a market with 4.1 months of supply, 40-day median times, and closings above original list is a strategy with observable terms. Those are the two things being weighed, and the honest answer is that they are not comparable in kind.

What a long-tenured owner can control is preparation. Basis documentation assembled now holds its value whether the thresholds double or stay frozen. A clear-eyed estimate of the gain, produced by a tax professional rather than a search engine, converts a vague dread into a figure that can be planned around. The sellers who will move fastest if this bill passes are the ones who did that work before it did.

The alternative is the position a great many North Shore owners already occupy: a house that no longer fits, an equity position that looks excellent on paper, and a tax question nobody has actually answered. That is not a market condition. It is a paperwork problem wearing a market condition’s clothes.

For sellers weighing the broader cost picture, The Hidden Costs of Selling Your Home That No One Tells You About covers the line items that sit alongside tax exposure in a net-proceeds calculation.

Real estate markets change. For current listings and market data, contact Maison Pawli at maisonpawli.com/about/.

Legislative status is current as of August 19, 2026. Bills move, co-sponsor counts change, and tax provisions are amended in committee. Verify current status before making any decision based on this article.