Will the Capital Gains Exclusion Double? What the More Homes on the Market Act Means for Coastal Sellers Moving to the Desert

If you bought a house in Orange County or San Diego in 1998 and you are thinking about selling it to move to La Quinta or Palm Desert, there is a good chance a tax rule written before the iPhone existed is the biggest single line item in your move.

Here is the rule. When you sell a primary residence you have lived in for two of the last five years, you can exclude $250,000 of gain if you file single, or $500,000 if you are married filing jointly. Anything above that is taxable capital gain.

Those numbers were set in 1997 and have never been adjusted for inflation. Median California home prices have gone up several times over since then. The exclusion has not moved once.

What the bill would change

The More Homes on the Market Act would double the exclusion to $500,000 single and $1 million married filing jointly, and index both numbers to inflation going forward so this does not happen again.

It is bipartisan and it is moving. The House version, H.R. 1340, was introduced by Rep. Jimmy Panetta of California. The Senate version, S. 3332, was introduced by Sen. John Cornyn of Texas. As of August 2026 it carries 151 House co-sponsors and 23 Senate co-sponsors, 174 total, after picking up four more names right before the August recess.

Co-sponsorship is not passage. A bill can sit at 174 co-sponsors and never get a floor vote. But 174 is a real number, and the argument behind it lands with both parties: people who would downsize are staying put because selling triggers a tax bill, and that keeps larger homes off the market.

Who this actually affects in the Coachella Valley

Three groups, and they are not the same.

Coastal sellers moving here. This is the big one. If you and your spouse bought on the coast twenty five years ago, your gain may well be over $500,000. Under today’s rule you pay tax on the excess. Under the proposed rule, most of you would owe nothing. That difference is often six figures, and six figures is frequently the gap between buying here in cash and carrying a mortgage at 6.67%.

Long-time desert homeowners. If La Quinta or Palm Desert has been your primary residence since the early 2000s, you may be closer to the cap than you think, particularly if you file single or have lost a spouse. The surviving-spouse rules around the $500,000 exclusion are their own conversation and worth having with a CPA before you list.

Second-home owners. This one matters for what it does not do. The exclusion applies to a primary residence only. If your Palm Desert place is a second home or a rental, this bill does nothing for you. That is a different set of rules involving depreciation recapture and 1031 exchanges, and I have written about that separately.

 

What I would actually do about it right now

Nothing dramatic. Three things.

Find out your real number. Original purchase price, plus capital improvements you can document, plus selling costs. Most people guess high on their gain because they forget improvements. That is a conversation with your CPA, not with me, and it takes an afternoon.

Do not time your life around a bill. I have watched people wait on legislation before. Sometimes it passes and sometimes it sits in committee for six years. If the move makes sense at today’s rules, it makes sense. If it only works under the proposed rules, that is worth knowing too, and it is a reason to talk to a tax professional rather than a reason to wait quietly.

Know that a rule change would move inventory. If this passes, some share of the people sitting on appreciated homes will sell. More listings on the coast, more listings here. That cuts both ways depending on whether you are the buyer or the seller in the transaction.

Where this stands

The session runs through December. C.A.R. and NAR both back the change. Nothing has passed. I will update this post if that changes.

If you want to think out loud about what your specific numbers look like before you talk to a CPA, I am happy to do that. No pressure, and no expectation that you list anything.

Laura Lake | Your Desert Real Estate Partner | DRE #01455311

DesertRealEstatePartners.com | 760-464-8138

I am not a CPA or a tax attorney. This is general information about pending legislation, not tax advice. Talk to a qualified tax professional about your situation.