Many homeowners avoid selling because of high capital gains taxes, prompting real estate professionals to call for changes.
With median home prices exceeding $1 million in many U.S. housing markets, some real estate professionals are drawing attention to a 28-year-old capital gains tax law, citing it as one factor contributing to the nationwide housing shortage.
A recent report from Realtor.com shows that California is home to 8 of the 10 most expensive housing markets in the United States. San Jose tops the list with a median sales price of $2.02 million, followed by Anaheim and San Francisco at $1.45 million and $1.32 million, respectively.
Ken DeLeon, founder of DeLeon Realty in Palo Alto, told The Epoch Times that some communities in the San Francisco Bay Area have experienced skyrocketing home prices, which have jumped 667 percent since 1997—the year the Taxpayer Relief Act was signed into law, allowing married homeowners to exclude up to $500,000 in capital gains from the sale of their primary residence, and $250,000 for single homeowners.
“This outdated capital gains law has resulted in an artificially-created housing shortage,” DeLeon said. “A lot of older people who have lived in their homes for 30 years or more want to sell, but the value of those homes has tripled or quadrupled now. Some of these sellers could now be facing capital gains taxes of over $1 million.”
According to a HUD report, the median cost of a single-family home in 1997 was $143,000, compared with $414,000 in April 2025, as reported by the National Association of Realtors.
With the combined federal and state capital gains tax rate now at 37.1 percent in California, potential sellers seeking to avoid elevated tax hikes are choosing instead to remain in their current properties.
As a result, DeLeon said inventory levels have reached historic lows and sellers are stuck in a tax trap.
“We’ve seen more than 57 percent drop in inventory in the Silicon Valley, which means a lot of single people and young families are also stuck in expensive rentals,” he said.
By Mary Prenon
