Larry Kudlow appeared on last week and discussed two tax proposals President Donald Trump is mulling. One of them would push the home-sale capital gains exclusion to $2 million, a change that would sit far above current law.
Under current law, a couple can exclude the first $500,000 in gains from the sale of a residence. Kudlow seemed to be advocating for a fourfold increase, and the rule would also apply to second homes.
and the tax numbers
The scale is the point. A $2 million exclusion would not exactly scream middle class, even before the separate proposal to index capital gains to inflation enters the picture.
That second idea would change how gains are measured before tax is due. Grover Norquist told the Washington Post that he had urged Trump to make indexing capital gains to inflation happen with an executive order.
Capital gains and wealthy households
The current top rate for capital gains is 23.8 percent, including a 3.8 percent surcharge enacted to help cover the cost of the Affordable Care Act. Timothy Noah has argued that a couple reporting $1,000,000 in salary income pays an effective rate of about 30 percent, which is the benchmark these proposals run up against.
The proposal is being presented as a middle-class tax cut, but the mechanics point elsewhere. A larger home-sale exclusion and inflation indexing would mainly help people with larger gains, including owners of second homes and higher-value property.
Trump and the fiscal cost
The timing also collides with the federal balance sheet. The article says the national debt just passed $40 trillion, and it says Trump’s One Big Beautiful Bill will cost the federal government $4.5 trillion in lost revenues over a decade, according to the Bipartisan Policy Center.
The housing break already has a budget footprint of its own: the current $500,000 tax break, together with the mortgage interest deduction for first and second homes, is projected to cost the government $574 billion from 2025 to 2029 and add at least $1.15 trillion to the national debt. If Trump wants either idea to become policy, he will have to choose whether to turn campaign-style tax talk into a formal proposal and then push it through the next budget fight.
