As homeownership slips further out of reach for young Americans, a new bill introduced by Virginia Congressman John McGuiretakes aim at two ends of the housing market at once: first-time homebuyers struggling to afford a home, and senior homeownersreluctant to sell because of steep capital gains taxes.
The proposed legislation, called the American Dream Act, would eliminate capital gains taxes on home sales up to $500,000, if the seller is 65 or older and the buyer is a first-time homeowner. The bill would apply to rental or vacation properties in addition to primary residences.
McGuire says the idea came from constituents: retirees who feel trapped in their homes and younger buyers priced out of the market.
“The clear consensus is that homeownership has become too expensive and out of reach for young Americans,” McGuire tells Realtor.com®. “I also met with seniors across the district who are interested in downsizing or selling rental properties but choose not to because of the capital gains tax.”
This summer, those pressure points became impossible to ignore. The average age of a first-time buyer recently hit a record 40, while more than 1 in 3 U.S. homeowners would exceed the capital gains exclusion if they sold today.
For seniors, the effect is even more pronounced: In eight states and Washington, DC, more than half of homeowners 65 or older would exceed the current exemption for single filers.
McGuire’s bill is narrowly tailored but could provide a powerful incentive to free up inventory, if it clears Congress and hits the right demographic.
How the American Dream Act would change capital gains rules—and unlock homes
The American Dream Act enters a crowded field of proposals aiming to overhaul how home sales are taxed.
At the heart of the issue is the fact that the capital gains exclusion on home sales hasn’t budged since 1997. Sellers can currently exclude up to $250,000 in gains if filing singly, or $500,000 if filing jointly. But those limits haven’t kept pace with inflation—or with home prices, which have risen more than 260% since the rule was enacted.
Had the limits been indexed to inflation, they’d now be $660,000 and $1.32 million, respectively, according to University of Illinois Chicago research. As a result, more middle-class sellers—particularly seniors—are now being taxed on gains that were never intended to be caught in the IRS’ net.
McGuire’s bill offers a targeted workaround: Eliminate capital gains taxes on home sales up to $500,000 if the seller is 65 or older and the buyer is a first-time homeowner. The incentive would last for five years and apply not only to primary residences but to vacation and rental properties as well.
“Bills to reform capital gains are not new. My bill is unique because it unlocks a new source of affordable housing supply by enabling older Americans to sell property to first-time homebuyers capital gains–free,” McGuire says.
That sets his proposal apart from others that are gaining traction. The More Homes on the Market Act, which would double the existing exclusion limits, now has 94 bipartisan co-sponsors. Former Rep. Marjorie Taylor Greene also introduced a bill in 2025 to eliminate capital gains taxes on primary home sales entirely, though its future is unclear following her departure from Congress.
McGuire insists his plan is more strategic.
“Other bills increase the current 250/500 exemption, but that only applies to a primary residence. It doesn’t address the individuals who are older and wish to restructure their financial portfolio and sell secondary residences or vacation properties but have not done so due to capital gains,” he explains.
While the bill hasn’t yet been scored by the Congressional Budget Office, McGuire argues its long-term payoff would be economic.
“These homes will help their buyers produce generational wealth and all the economic impacts that come along with that,” he says.
Who the bill would help—and who it wouldn’t
The American Dream Act comes with three key restrictions: It applies only to sellers who are 65 or older, if the buyer is a first-time homebuyer, and if the sale price is $500,000 or less.
That may sound narrow, but a large share of today’s sellers fall within the target age group.
Baby boomers, aged 60 to 78, made up the majority of home sellers in 2025, accounting for 53% of all sales, according to the recent Generational Trends report from the National Association of Realtors®. While not all are over 65, many are, and an additional 5% of sellers are part of the Silent Generation, aged 79 to 99.
Things get trickier when it comes to buyer eligibility. First-time homebuyers made up just 21% of purchases in 2025, according to data from NAR. That group has shrunk in recent years as affordability challenges pushed more would-be buyers to the sidelines. While the bill aims to create more opportunities for these buyers, the requirement that the home be sold to a first-time buyer would limit how many sales would qualify.
But the biggest constraint may be the $500,000 price cap.
The median price for existing-home sales in December 2025 was just over $405,000, according to NAR data. That sits comfortably below the bill’s ceiling, but it also lands in a range where many sellers wouldn’t owe capital gains taxes in the first place.
For married couples filing jointly, current law already allows up to $500,000 in gains to be excluded on the sale of a primary residence. Because most older adults are married, many would likely already qualify for the full exclusion without any new legislation.
Capital gains also apply only to profit, not the sale price. A homeowner’s purchase price, closing costs, and documented improvements are added together to calculate an adjusted cost basis, which is then subtracted from the sale price to determine taxable gain.
Consider a homeowner who bought a house in 1988 for $70,000. Over the years, the homeowner remodeled the kitchen for $10,000, added a pool for $30,000, installed a new roof for $7,000, replaced carpet with hardwood floors for $10,000, and installed a new AC unit for $7,000. The homeowner’s adjusted cost basis would be $134,000.
If that homeowner sold the property for $405,000, the profit would be $271,000. That would exceed the exclusion for a single filer but fall well within the existing $500,000 protection for married couples.
Surviving spouses also receive a further cushion through the step-up in basis, which resets the home’s value at the time of a partner’s death, lowering the likelihood that capital gains taxes would apply at all.
But McGuire argues that these existing breaks are too limited in scope. His bill, he says, targets a group of older Americans who own more than one property but feel stuck, unable to sell without triggering a tax hit.
“Individuals 65 years of age or older in the U.S. have the highest homeownership rate in the country,” he says. He points to a figure from NAR contending that as many as 15% to 19% of senior homeowners have at least one additional residence.
“This bill allows them to sell their residence capital gains–free to a first-time homebuyer, increasing the housing inventory available to first-time buyers and enabling the younger generation to realize the American dream of homeownership,” he adds.
What’s next
As of Feb. 4, the American Dream Act has attracted 11 co-sponsors, all of whom are Republican. For the bill to gain real traction, it will likely need bipartisan support, particularly from Democrats focused on housing affordability and generational equity.
The proposal is designed as a time-limited incentive, set to expire in 2031 unless Congress acts to extend it. By that time, nearly half of homeowners over the age of 65 are projected to exceed the $250,000 capital gains exclusion for single filers.
Whether McGuire’s bill moves forward or not, the pressure to reform housing-related tax policy—especially for aging homeowners—will only grow.
Realtor.com
FEBRUARY 4, 2026
