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The federal tax break on the sale of a primary home has been frozen since 1997. For nearly thirty years, most owners have been able to exclude $250,000 of gain if they file individually, or $500,000 if they are married and file jointly. Those numbers have never been adjusted for inflation, even as Denver-area home prices have moved well past them.

A bipartisan bill now in Congress would change that. The More Homes on the Market Act (H.R. 1340 in the House, S. 3332 in the Senate) would raise the Section 121 exclusion to $500,000 for single filers and $1 million for married couples filing jointly, and then index those figures to inflation. The two-out-of-five-year ownership and use tests would stay the same. So would the rule that you generally cannot claim the full exclusion more than once every two years.

This is still a proposal. It is not law.

What the new cap would do

The proposed cap would shelter twice as much primary-home profit from federal capital gains tax, then rise with inflation after enactment. Ownership and use tests would not change.

Under current law, gain is sale price minus adjusted basis (what you paid, plus qualifying improvements, minus depreciation if any applied). Selling costs reduce the gain. The exclusion then shelters the first $250,000 or $500,000 of that gain. Anything above it is generally taxed as a long-term capital gain at the federal level, often 15 percent, sometimes 20 percent for higher-income households, plus the 3.8 percent net investment income tax in some cases.

The bill would simply raise those two dollar amounts and let them float with inflation after enactment. It would apply to sales after the date the bill becomes law, according to the current text.

Colorado still taxes the gain that federal law does not exclude. A larger federal exclusion does not erase state tax. Anyone running numbers should sit with a CPA, not a listing presentation.

How a bill like this actually becomes law

It will not pass as a standalone bill. It needs to be attached to a year-end tax package, a reconciliation bill, or another budget vehicle. The realistic windows this Congress are November–December 2026 or early January 2027.

Standalone tax bills almost never walk across the finish line on their own. H.R. 1340 has been sitting in the House Ways and Means Committee since February 2025. S. 3332 has been in Senate Finance since December 2025. Both have picked up a long list of cosponsors, including Colorado’s Michael Bennet on the Senate side, but committee referral is not a vote.

For this to become law, it almost certainly has to be folded into a larger vehicle:

• a year-end tax package
• a reconciliation bill that can pass the Senate with 51 votes
• or a broader budget or extender bill that leadership is already moving

The 119th Congress ends in early January 2027. The realistic windows this cycle are a post-election lame-duck session in November and December 2026, or a last-minute tax package before the new Congress is sworn in. If it misses those, the bill would need to be reintroduced in 2027 and start the committee process again.

None of that is a prediction. It is the ordinary path for a change to the Internal Revenue Code. Owners who are planning a 2026 or early 2027 sale should treat the current $250,000 / $500,000 caps as the working rule until a bill is signed.

What it might do to inventory

Expect a possible short-term listing pop in expensive, long-held neighborhoods if the cap rises. Longer term, 1997-era research and a 2026 Brookings analysis both point to a modest lasting effect. Rates and replacement costs still matter more.

Supporters argue that the frozen 1997 caps keep longtime owners from listing. In neighborhoods where a 1990s or early-2000s purchase has turned into a seven-figure sale, the tax on the uncovered gain can be large enough that a household simply stays put. National Association of Realtors officials have framed the bill as a way to unstick some of those homes.

The research is more measured.

The closest historical parallel is the Taxpayer Relief Act of 1997, which created the current exclusion. A study of affluent Boston-area towns found a clear short-term jump in sales after that change. Among homes with gains up to the new cap, the semiannual sales rate rose 19 to 24 percent over the longer window, and 70 to 81 percent in the first three years. Homes with gains already above $500,000 saw a short-term bump as well, then little lasting effect.

A 2026 Brookings analysis of the current proposal reached a different conclusion for the country as a whole: most households, including most older owners, already fall under today’s caps. The people who would benefit from a higher cap are a smaller group of higher-wealth owners in expensive markets. On that reading, a larger exclusion would not move national inventory in a meaningful way.

Both things can be true at once. In a town like Columbine Valley, or on the classic blocks of Wash Park, a much larger share of long-held houses sit above the current joint cap than the national average. A change could produce a short burst of listings from owners who have been waiting for the tax math to improve. Over a longer horizon, mortgage rates, replacement-housing costs, and the step-up in basis at death still do more to decide whether someone lists. Rate lock-in, in particular, has been the larger brake on turnover since 2022.

The honest expectation, if the bill ever passes: a possible short pop in listings among long-tenured owners in high-appreciation pockets, then a return to the same market drivers we have now.

Three local pictures

These are illustrations, not tax advice. Selling costs, improvements, filing status, and the 3.8 percent surtax change the result. The point is simply where the current cap starts to matter.

1. A Columbine Valley family thinking about a smaller house

Typical values in town have been running near $1.7 million. Imagine a couple who bought in the mid-2000s for $625,000, put $75,000 of documented improvements into the house over the years, and could sell today for $1.72 million after a normal round of closing costs. Their gain is roughly $1.02 million.

Today, the $500,000 joint exclusion leaves about $520,000 exposed. At a 15 percent federal rate that is roughly $78,000, before Colorado tax. Under the proposed $1 million cap, almost all of that gain would be sheltered at the federal level. The remaining decision is the usual one: is there a smaller house they actually want, at a payment they will accept, in a market that still has thin inventory inside town limits.

The tax bill is not the only reason people stay on Fairway Lane or near the club. It is one of the reasons a conversation about downsizing stalls.

2. A Wash Park couple choosing between a remodel and a sale

Wash Park medians have been living in a wide band, often $1.5 million to a little over $1.8 million depending on the month and the mix of classic bungalows versus larger renovated houses. Take a couple who bought a dated two-story in 2010 for $740,000. They have put little into the kitchen and baths. A contractor’s number to do the house properly is $350,000. A realistic as-is sale is $1.65 million. Gain, after selling costs, is about $850,000.

Under current law, $350,000 of that gain is taxable. At 15 percent federal, that is about $52,500, plus state tax. That number sits right next to the remodel bid. Some owners look at those two figures and conclude it is cheaper, emotionally and financially, to stay and renovate.

If the exclusion rose to $1 million, the federal tax on this sale would largely disappear. The remodel-versus-sell question would turn back into a housing question: do they still want this block, this lot, this school walk, or do they want a house that is already finished somewhere else.

3. A single owner who needs more room

The current cap is hardest on people who file as single, because their exclusion is half the joint amount. Consider an owner who bought a smaller Wash Park or near-park home in 2012 for $485,000 and can sell it for $980,000. After costs, the gain is about $460,000.

Today, $250,000 is excluded. About $210,000 is taxable. At 15 percent federal, that is roughly $31,500, before Colorado tax and before any 3.8 percent surtax. The proposed single-filer cap of $500,000 would cover the whole gain. That is thirty-plus thousand dollars that could go toward the down payment or the rate on the next house, which is the entire point of the move.

For a single owner stretching into a larger home in a six-percent-rate market, that difference is not abstract.

What to do with this while it is still a bill

Treat the current caps as the law. If you are already close to a decision to sell, do not wait on Congress. If you are two or three years away, keep the proposed numbers in the file and look at them again if a tax package actually moves.

The ownership and use tests will still matter. Improvements you can document will still matter. Colorado tax will still matter. And the next house, at today’s rates, will still be the larger number on the page.

This is the kind of question we would rather work through with you now, as strategic consultants, than rush through later when a listing deadline is already on the calendar. We are in this for the long relationship: basis, timing, the next house, and the one after that.

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