Eliminate the capital gains tax on inflation

OPINION:

The two of us have spent a lot of time together walking around to offices on Capitol Hill, asking lawmakers and their staffs what most concerns Americans. They all say the same thing: affordability.

When we ask what they plan on doing about it, especially with midterm elections on the horizon, they almost all say they can’t do anything because nothing could pass the House and Senate.

Our response to them is simple: If affordability is their biggest concern, then index for inflation the capital gains tax on the sale of residential real estate.

One of the consequences of President Joe Biden’s wild inflationary policies and the blue-state regulations that limit the number of homes that can be built is that the cost of larger family purchases, such as homes, remains high.

In fact, one of the largest drivers of inflation to this day is housing.

In poll after poll, we see younger Americans dissatisfied with the state of the housing market and increasingly convinced that they will never own a family home.

Meanwhile, retirees are trapped in houses purchased decades ago and unable to offload their assets because of high tax bills upon sale.

While much of this hinges on bad regulatory policy in state and local governments, the federal government could ease people’s financial reticence by eliminating the capital gains tax on inflation. That is, we should not tax anyone on the amount of a gain attributable to inflation.

Think of it this way. Under Mr. Biden, inflation was up a whopping 20%. If someone bought a $1,000 asset on day one of the Biden-Harris administration and sold it for $1,200 on the last day, the $200 “gain” would be subject to the capital gains tax. But why? That taxpayer has gained no new value; $1,200 in 2025 was just as much purchasing power as $1,000 in 2021.

So why is it fair to tax that $200 difference?

Under current law, capital gains are taxed at the full value of the nominal gain, regardless of the inflation that has occurred between purchase and sale.

For example, an exurban Washington home purchased for $150,000 in 1980 and sold for $1 million in 2026 would be evaluated as an $850,000 capital gain (before exclusions, etc.). Depending on household income and filing status, a middle-class couple could owe $52,000 on this sale. This math keeps many folks trapped in their homes.

If that home sale were adjusted for inflation, the $150,000 purchase price would be valued at over $646,000 in 2026 dollars. That would reduce the assessed gain to $354,000, slashing the capital gains tax burden to $0 for most couples.

Ideally, we would repeal the inflation tax on all capital gains because taxing someone on a devaluation in the purchasing power of our currency is as unfair as it is ludicrous. But if that is currently unfeasible, eliminate the inflation tax just on capital gains from residential property sales.

Failure to address this concern could mean political disaster for conservatives. That’s why eliminating the capital gains inflation tax on residential property sales should be the centerpiece of a third “reconciliation” package (which requires just simple majorities in both congressional chambers; no filibuster allowed).

The ’unlocking’ effect on home sales could supercharge the economy and help ease the steep home-price increases of recent years, effectively killing two birds with one stone. Seniors could downsize and economize their expenses while housing supply for first-time homebuyers and young families would increase.

History shows that when the capital gains tax burden is lowered, revenues from increased economic activity soar. Some estimates show that index capital gains on the sale of residential real estate for inflation would raise $100 billion in revenue to the federal government.

It would propel asset sales that otherwise would not have happened. More homes on the market would increase competition between sellers, give additional options to Americans of all ages who are looking to buy and create downward pressure on housing market prices.

Americans are crying out for relief from inflated housing prices. This is our opportunity to do something about it.

President Trump’s One Big Beautiful Bill has created economic opportunity and increased take-home earnings for millions of American families. On top of avoiding a catastrophic $4 trillion tax increase, the law gives Americans no taxes on tips up to $25,000, allowed businesses 100% immediate expensing for business equipment and research and development and reduced the number of family farms forced to break apart through punitive death taxes.

Eliminating the inflation tax on residential property capital gains would pair well with this already stellar record, increasing the housing supply and offering relief to both younger Americans looking to buy their first home and older Americans looking to downsize. It would unlock asset sales to supercharge the economy and remove an unfair inflationary tax from the largest asset most Americans will ever own.

We believe the folks on Capitol Hill when they say that affordability is a defining issue, but they should do something about it. Ending the inflation tax on residential property sales is a good place to start.

• Tim Doescher is executive director of Unleash Prosperity and Paul Teller is president of Teller Strategies.