For many longtime Staten Island homeowners, decades of appreciation have created substantial equity. That is welcome news—until the possibility of capital gains taxes becomes another consideration in deciding whether it is time to sell.

Federal lawmakers have introduced proposals that would increase the amount of gain qualifying homeowners may exclude when selling a primary residence.

One proposal, known as the More Homes on the Market Act, would double the general federal exclusion amounts and provide future adjustments for inflation.

Supporters believe updating the limits could help longtime homeowners downsize, relocate or move closer to family while also encouraging additional homes to enter the housing market.

What Is the Home-Sale Capital Gains Exclusion?

When an eligible homeowner sells a primary residence, federal tax law may permit a portion of the gain to be excluded from taxable income.

Under current federal rules, the maximum potential exclusion is generally:

• Up to $250,000 for a qualifying individual taxpayer
• Up to $500,000 for qualifying married taxpayers filing jointly

The exclusion applies to qualifying gain. It does not apply to the home's entire sale price.

Why Are Lawmakers Considering an Increase?

The current exclusion amounts have remained unchanged since 1997, even though home values in many parts of the country have increased substantially.

A homeowner who purchased a Staten Island property decades ago may have accumulated a significant gain even though the property was never considered an extravagant or luxury home.

Supporters of the proposal contend that outdated limits may discourage some longtime homeowners from selling. An owner may want to downsize, move closer to family or relocate for retirement, yet hesitate because part of the accumulated gain could potentially be taxable.

Raising the exclusion could potentially:

• Help longtime homeowners retain more accumulated equity
• Make downsizing more practical for some older homeowners
• Encourage additional properties to enter the housing market
• Create more options for buyers seeking larger homes
• Allow owners to make decisions based more on lifestyle needs

Why This Could Affect Housing Inventory

Some homeowners remain in properties that no longer suit their needs because selling may create financial, logistical and tax concerns. This is sometimes described as a lock-in effect.

A larger exclusion might encourage some longtime owners to list larger homes and purchase smaller or more manageable properties. That could create additional options for growing families and other buyers.

Tax reform alone would not solve the housing shortage. The effect would depend on the final law, how many homeowners qualify and whether potential taxes are the primary reason those homeowners have delayed selling.

What Are the Current General Requirements?

Under general federal rules, a homeowner commonly must satisfy both an ownership test and a use test. During the five-year period ending on the sale date, the seller generally must have:

• Owned the home for at least two years
• Used the property as a primary residence for at least two years

Additional rules and exceptions may apply when:

• The property was partly used as a rental or for business
• Depreciation was previously claimed
• The property was inherited or received as a gift
• A spouse died before the property was sold
• The seller used the exclusion on another home during the prior two years
• The homeowner may qualify for a reduced or partial exclusion

Can Home Improvements Affect the Calculation?

Certain qualifying capital improvements may increase the property's adjusted cost basis, potentially reducing the calculated gain.

Examples may include additions, major renovations, a new roof, permanent heating or cooling systems and other improvements that add value or extend the property's useful life.

Routine repairs and maintenance are generally treated differently. Homeowners should keep purchase documents, receipts, contracts, permits and records of substantial improvements.

What Should Homeowners Do Now?

Proposed legislation can be changed, delayed or fail to become law. Homeowners should not make a major selling decision solely because of a headline.

My Perspective as a Staten Island Realtor

I regularly speak with homeowners who have spent decades building equity in their properties. Some want less maintenance. Others hope to move closer to their children, enter a 55-plus community or plan an out-of-state relocation.

The decision to sell is rarely based on one number. It may involve the home's current value, selling costs, mortgage balance, replacement housing, timing, lifestyle considerations and potential tax consequences.

Updating the federal exclusion could provide greater flexibility for some longtime homeowners. Until a proposal becomes law, however, planning should be based on the rules currently in effect and advice from the appropriate professionals.