The Housing Pitch Hides a Broader Capital Gains Cut

House Republicans asked Treasury Secretary Scott Bessent on March 6, 2026, to index capital gains to inflation by rule. The Real Estate Caucus framed the request as a way to unlock homes and help first-time buyers. The same change would rewrite the cost basis of stocks, business stakes, and every other capital asset Treasury touches.

Most people who sell a main home already owe no federal tax on the gain. The money in this fight is in financial assets, in a 10-year revenue hole that can run into the hundreds of billions, and in a Justice Department opinion from 1992 that is still on the books.

House Republicans Sold Indexing as a Housing Fix

Real Estate Caucus co-chairs Mark Alford of Missouri and Tracey Mann of Kansas, with Republican Study Committee Chairman August Pfluger of Texas, led the March 6 letter to Secretary Bessent. Six more House Republicans signed: Ben Cline of Virginia, Scott Perry of Pennsylvania, John Rose of Tennessee, Jimmy Patronis of Florida, and John McGuire of Virginia.

They asked Bessent to “utilize existing executive authority to remove the inflation tax on savings and investment by indexing the Department of the Treasury’s calculation of capital gains tax liability to inflation.” They did not ask him to raise the home-sale exclusion. They asked him to change how cost is defined for capital gains as a class.

Taxing these phantom gains can discourage housing mobility, lock up housing supply, penalize long-term homeowners, and distort real estate investment decisions.

Reps. Mark Alford, Tracey Mann, August Pfluger and colleagues, letter to Treasury Secretary Scott Bessent, March 6, 2026

Pfluger, who chairs the Republican Study Committee, said homeownership is central to the American Dream and that families should not be taxed on top of the inflation of the Biden years. Stephen Moore, co-founder of the Committee to Unleash Prosperity, made the same housing pitch in June, writing that Republicans should index capital gains “to unlock housing inventory.”

Sens. Ted Cruz of Texas and Tim Scott of South Carolina had already sent Bessent a similar ask in early March. Cruz also sponsored the Capital Gains Inflation Relief Act of 2025. The House letter cites a 2019 Senate Republican effort, also led by Cruz, that made the same administrative case. That Senate Republicans’ March request to Treasury sits on a parallel track: same Treasury secretary, same shortcut around a vote, same claim that defining “cost” can swallow inflation.

A February 19 coalition letter to President Trump, organized with Americans for Tax Reform, Club for Growth, and other conservative groups, had already urged him to order the change. The political product on offer is a housing talking point. The legal instrument is a rewrite of basis for every capital asset.

Most Home Sellers Already Pay Nothing

Under current law, a seller who meets the ownership and use tests can take the IRS $250,000 and $500,000 home sale exclusion. A single filer may exclude up to $250,000 of gain on a main home. A married couple filing jointly may exclude up to $500,000. The tests are simple on paper: own the home for at least two years in the five years before the sale, and live in it as a main home for at least two years in that same window. You generally cannot use the exclusion again if you used it on another home in the prior two years.

That shield is why so few primary sales show up in the taxable-gain tables. Second homes and rentals do not get it. Depreciation recapture on a rental still sticks. Sellers who blow through the cap in expensive markets, or who cannot document improvements, can still owe tax. Those are real files. They are not most files.

Former National Economic Council Director Larry Kudlow said in August that he had talked with Trump about indexing and about “a bigger exemption” for home sales. National Economic Council Director Kevin Hassett said Trump was considering the issue. Reps. Jimmy Panetta, a California Democrat, and Mike Kelly, a Pennsylvania Republican, have a separate bill, the More Homes on the Market Act, that would lift the exclusion to $500,000 for individuals and $1 million for couples and then index those caps. That is a housing statute. Indexing all capital gains is not.

If the policy goal is empty-nesters listing a long-held house, raising Section 121 is the tool that hits that sale and leaves a brokerage account alone. The Alford letter does not ask for that tool. It asks Treasury to inflate basis across the board and then talks about first-time buyers.

Stocks, Not Houses, Produce the Taxable Gains

The IRS last published a detailed split of individual capital-asset sales by type for tax year 2015, and the Congressional Research Service walked those tables next to 2007. Residences were a thin slice of reported gains in both years. The small share is not because houses never rise in price. It is because almost all of that gain is already excluded.

SHARE OF REALIZED GAINS BY ASSET TYPE

Pass-through gains plus corporate stock were 65% of the 2007 mix and 69.4% in 2015. CRS notes that a large share of pass-through gain is itself corporate stock. Homes were 1.2 percent of realized gains in 2015. Indexing “for homeowners” is, on that evidence, a label. The taxable base is brokerage accounts, funds, and business stakes held through partnerships and S corporations.

Americans for Tax Reform points to IRS tax-year 2022 data showing 30,465,850 households reported a capital gain and 22,647,560 of them made less than $200,000, or 74 percent of those returns. That is a count of forms. It is not a count of tax dollars. Long-term gains are taxed at 0%, 15%, or 20%, and higher-income households also face the 3.8% net investment income tax, for a top federal rate of 23.8% above $200,000 for singles and $250,000 for joint filers.

John Ricco, associate director of policy analysis at the Yale Budget Lab, said any broad capital-gains cut is “almost certainly going to be a regressive policy,” because the people who hold and sell those assets sit up the income ladder. The Budget Lab’s figures, as relayed by Ricco, give the top 0.1% about $350,000 in tax savings in 2026 to 2027 and give the bottom 40% of households none. The Bipartisan Policy Center, drawing on the same work, says the cut would almost exclusively benefit the top 20 percent and would land hardest in the top 1%.

What Indexing Capital Gains Would Cost Over 10 Years

Indexing means the original basis steps up with prices before the tax is figured, so only the gain above inflation is taxed. CRS uses a clean specimen: a stock bought for $100 and sold for $150 after 10 years. Current law taxes $50. At 2% inflation, basis rises by $22, and the taxable real gain is $28.

The longer the hold, the less indexing changes the effective rate, because deferral already shelters a growing pile of untaxed gain, and because assets that pass at death get a step-up to market value. CRS puts the five-year marginal effective rate on top-bracket stock, the neighborhood of the average realized hold, at 29.1% now and 23.1% with indexing. Held until death, both regimes sit at 12.7%, because the heir’s basis resets either way. About 40% of gains are never realized, CRS estimates.

The budget cost turns on a few switches: new purchases only or assets already owned, and how long you must hold. Jane G. Gravelle and Mark P. Keightley at CRS ran those switches through the Budget Lab Tax-Simulator for FY2026 to FY2035. They are not Joint Committee on Taxation scores, and CRS says they may differ from a JCT table. They are the fullest public grid on the table.

CRS 10-YEAR REVENUE EFFECTS, FY2026 TO FY2035

That is the one span that matters: revenue estimates from $39 billion to $955 billion over 10 years, depending on whether old assets are pulled in and how long they must be held. S. 798 and H.R. 1857, the bills CRS flags, would index gains on assets held at least three years, the -$91 billion and -$855 billion rows if those bills were scored on this grid.

The Alford letter does not pick a row. An administrative rewrite that reached assets people already own, with a short holding period, sits at the expensive end. House Ways and Means Chairman Jason Smith has said he is focused on working families and has not taken up the indexing push. Senate Finance Chairman Mike Crapo has signaled more interest. The tax-writing chairs are a stakeholder the Real Estate Caucus does not name.

Indexing gains while leaving interest fully deductible would also open a mismatch the code does not now have: borrow in nominal dollars, deduct the full coupon, and pay tax only on real appreciation. A flat-price asset whose basis stepped up with CPI would throw off a paper loss. A short position would flip the other way. Those are not housing problems. They are trading problems, and they appear the moment Treasury inflates basis for one side of the ledger and not the other.

A 1992 Justice Opinion Still Says No

The letter says “legal scholarship spanning decades” gives Treasury the power to define cost basis. The controlling executive-branch document says the opposite.

THE ADMINISTRATIVE ROAD, THREE STOPS

1. September 1, 1992: The Justice Department Office of Legal Counsel, in an opinion by Assistant Attorney General Timothy E. Flanigan, concludes that Treasury does not have legal authority to index capital gains for inflation by regulation.
2. 2019: Senate Republicans led by Cruz urge Treasury to do it anyway. President Trump does not proceed. Sen. Mitt Romney writes Secretary Steven Mnuchin in support of that decision, citing the 1992 opinion and a Tax Foundation estimate from that period.
3. March 6, 2026: The Real Estate Caucus asks Bessent to use “existing executive authority,” citing the 2019 Senate letter and not the 1992 opinion.

The 1992 opinion that Treasury lacks authority is still posted. It told the George H.W. Bush White House that neither the president nor the Treasury secretary nor the IRS commissioner could revise the regulations to strip inflation out of gain. Bush’s press secretary called the conclusion disappointing and said the White House would seek a statute instead.

The 1992 Chamber-side argument leaned on Chevron deference, which the Supreme Court ended in 2024 in Loper Bright. The Bipartisan Policy Center notes that the loss of Chevron is an extra hurdle, not a lower one, for a Treasury that wants to read “cost” as inflation-adjusted cost when Congress has spent a century treating it as what the taxpayer paid. Article I, Section 8 gives Congress the power to lay taxes. Congress has indexed brackets, the child tax credit, and other dollar figures by statute. It has not indexed basis.

A rule that went out anyway would be in court before the first 1099-B cycle. A later administration could pull it. Basis that floats with the White House is a planning headache for anyone sitting on a long-held position, house or otherwise.

Congress Already Has a Narrower Home Bill

If the target is housing inventory, three live options already sit in front of the same members who signed the Bessent letter, and they do not require a new definition of cost.

THREE HOUSING TOOLS ALREADY IN PLAY

• Keep Section 121 as it is: The $250,000 and $500,000 exclusion, with the two-of-five-year tests, already takes most main-home sales off the taxable roll.
• Raise and index the cap: The Panetta-Kelly More Homes on the Market Act would lift the exclusion to $500,000 for individuals and $1 million for couples and then index those amounts, a change that hits houses and not brokerage accounts.
• Index every capital asset: The Alford-Cruz ask, by regulation or by S. 798 and H.R. 1857, would step up basis on stocks, funds, business stakes, second homes, and rentals alike.

People who want cheaper houses keep pointing at demand, zoning, and who is bidding, not at Schedule D. A primary-residence-only break is the instrument that matches the talking point. Full indexing is the instrument that matches a stock-market tax cut. Trump, per Kudlow, liked both ideas when they were put to him. Only one of them needs a fight with the 1992 opinion.

Record-keeping still pays under any of the three. Closing statements, improvement receipts, and depreciation schedules raise basis today. They would matter more if Treasury ever inflated that basis by CPI, because the starting number is what gets stepped up.

Bessent Has a $40 Trillion Debt Problem

Bessent has not answered the March letters in public. In August he was talking fiscal consolidation, a “very good chance” the deficit had peaked, and a national debt around $40 trillion. Rep. Ralph Norman of South Carolina, vice chair of the House Freedom Caucus, used the same $40 trillion figure when he pushed back on a separate Trump cash-transfer idea. A Treasury secretary who is trying to calm the long end of the bond market is being asked, in the same season, to open a revenue hole as large as $955 billion over 10 years if old assets are indexed with a one-year hold.

Trump spent August weighing the indexing idea. Conservative groups want a signature. The Real Estate Caucus wants a housing headline. The people who would collect most of the cut already hold the stocks and pass-throughs that dominate the IRS tables. The people who sell a main home under the current cap would notice little. Until Treasury writes a rule or Congress writes a statute, the 1992 opinion is the last official word, and the exclusion in Topic 701 is still the law that actually governs a house sale.

Disclaimer: This article is news reporting and analysis of a proposed change to federal capital-gains rules. It is for information only and is not tax, investment, or legal advice. It does not tell any reader whether to sell a home, a security, or any other asset, or how to file. Consult a qualified tax professional, enrolled agent, or tax attorney about your own basis, exclusion, and filing position before you act. Dollar figures, bill numbers, and legal conclusions here follow the cited official documents and estimates as of the dates on those documents and will change if Treasury, Justice, or Congress issues a new rule, opinion, or statute.