No Property Tax or No Capital Gains Tax: Which Helps Homeowners More?

As home values have soared, the taxes tied to owning and selling a home are under more scrutiny than ever. For longtime homeowners who bought low and watched their equity grow, it’s become a boxing match of which tax hits hardest.

In one corner: property taxes, rising steadily thanks to rising assessments, voter-approved bonds, and shifting local budgets. In the other: the capital gains tax, a hit that can surprise even middle-class sellers in high-growth markets.

Now, states across the country are weighing tax relief proposals, from slashing property taxes to eliminating capital gains at the state level. Even the federal government is making changes, from raising the SALT cap to “thinking about” scrapping the capital gains tax on primary home sales.

But when it comes to real dollars and long-term wealth, which break actually benefits homeowners the most?

Understanding property and capital gains taxes

Property taxes are imposed by local governments based on the assessed value of a home. In many states and counties, primary residences receive partial exemptions (like a homestead or senior exemption, or sometimes both) that reduce the taxable value of a home far below market value. But these efforts don’t offer equal relief to homeowners across the country.

Revenue from property taxes stays local, funding essential local services like public schools, road maintenance, and emergency response. These services often help sustain or boost property values, since homes in well-resourced neighborhoods tend to be more desirable.

Capital gains taxes, by contrast, are federal taxes applied to the profit you make when you sell an asset (such as your home) at a higher price than you paid. For primary residences, homeowners may exclude up to $250,000 in gains ($500,000 for married couples) from taxation, assuming certain conditions are met. Any gains above those thresholds are taxed at a special rate as part of your federal income and go into the U.S. Treasury’s general fund, which helps pay for programs like Social Security, Medicare, and national defense.

While these federal programs may seem more distant from your home’s value, they can significantly affect the quality of life of many homeowners. For example, many older homeowners rely on Medicare—which is partially funded by the federal government’s general revenues—to age in place and maintain financial stability in retirement.

No capital gains tax: A win for long-term wealth builders

The capital gains tax exclusion for primary residences hasn’t been adjusted since 1997. Since then, home values have surged more than 260%, according to research from the National Association of Realtors®. Today, nearly 29 million households have built up more equity than the exclusion for single filers protects, making more homeowners vulnerable to this hidden home equity tax.

Eliminating capital gains tax on primary residences could help millions of Americans preserve more of the wealth they’ve spent years building. And for many, that equity is their greatest financial asset.

“No capital gains tax on primary residences has a huge compounding effect over time,” explains Andrea Monti Solza, co-founder at Conveyo.io, a technology company for residential homebuying and selling. “Exempting its appreciation from tax turns homeownership into an intergenerational wealth vehicle, especially in markets with high appreciation and tight supply.”

For longtime homeowners, the average capital gains tax liability can be significant. Today, over 31% of homeowners have more equity than the $250,000 with an average potential tax liability of more than $40,000 if they sold their home. By 2035, those numbers are expected to jump to almost 55% of homeowners, with an average tax liability of more than $82,000, according to research from NAR.

“Capital gains strategies generally have a greater long-term impact than marginal property tax savings, but both need to be considered together,” says Spencer Carroll, CPA and account executive at Gelt.

That’s partly because there are already ways to minimize or defer capital gains taxes. For primary homeowners, selling and purchasing another home effectively resets their cost basis, allowing them to roll over their equity without immediately realizing a taxable gain.

For investors who don’t qualify for the primary residence exclusion, a similar strategy exists: the 1031 exchange, which allows them to defer capital gains taxes by reinvesting proceeds from a sale into another qualifying property.

But these strategies come with limitations. Selling a home involves significant transaction costs, and in today’s tight housing market, many homeowners feel locked in with nowhere to go. For those unable to move or navigate complex tax strategies, capital gains can become a punishing penalty on years of responsible ownership. That’s why eliminating the tax altogether—or at least adjusting it for today’s market—could be a transformative win for homeowners across the country.

No property tax: A lifelong cash flow advantage

While not all property owners will get hit with a capital gains tax when they sell their home, there is one tax that all homeowners must answer to: the property tax.

Unlike a one-time event at sale, property tax is a recurring cost that affects a homeowner’s budget month after month, year after year. And for middle-income families—particularly those on fixed incomes or still building wealth—those annual bills can add up fast.

Over time, the savings from eliminating property taxes could be substantial.

“A homeowner who has gains in excess of [federal capital gains exclusion limits] is likely on the older side, further along in their career, and already financially stable. Whether they pay capital gains at that point in their life is somewhat inconsequential to their financial outlook,” says Sean Leo, founder and head of analytics at Riverdale Property Tax Relief.

“Whereas if they could have avoided property taxes for the last 13 years—the median homeowner duration in America—while they were building up their net worth, this could have significant impact on long-term wealth building thanks to compounding interest from investments,” he adds.

For many homeowners, especially those who never expect to hit the capital gains threshold, property taxes represent the more immediate and more punishing cost of ownership.

That said, low or no property taxes don’t always translate to lower costs overall. In popular “tax-friendly” states like Texas and Florida, buyers may face steep hidden expenses, explains Monti Solza.

“When chasing tax-friendly states like Florida or Texas, people often don’t ask themselves ‘why are they tax-friendly?’” he explains. “The reason is often the hidden cost of owning property there, especially skyrocketing home insurance (due to hurricanes or wildfires), rising HOA fees, poor construction quality in fast-growth areas, and maintenance costs from harsh climates.”

These costs can erode wealth just as quickly as taxes, especially when buyers overlook them during the initial purchase.

There’s also the broader question of what property taxes pay for. Local schools, road maintenance, public safety, libraries—these services help hold up property values and are funded almost entirely by property tax revenues. Cutting or eliminating that funding may come with consequences that directly impact neighborhood desirability and long-term home values.