Last week, Larry Kudlow and Kevin Hassett used to float two tax ideas President Donald Trump is mulling, including a much larger break on profits from home sales. Kudlow appeared to be pushing a $2 million exclusion, far above the current $500,000 limit for a couple selling a residence.
That detail matters because the home-sale exclusion is already a sizable subsidy, and it also applies to second homes, not just a family’s main house. A bigger version would widen a tax break that already treats capital gains more gently than wages. The current top capital gains rate is 23.8 percent, including a 3.8 percent surcharge enacted to help cover the cost of the Affordable Care Act, while a couple reporting $1,000,000 in salary income pays an effective rate of about 30 percent.
The timing is what has put the idea back in circulation. Trump is considering more tax breaks, and the discussion on offered a glimpse of how they may be sold: as relief for ordinary homeowners, even though the benefits would land mostly with people who own expensive properties and other assets. That split has always been part of the politics around capital gains. Investors are taxed more favorably than workers, and the proposed home-sale change would extend that advantage further into housing.
The numbers behind the current break help explain why. The existing $500,000 exclusion, together with the mortgage interest deduction for first and second homes, is projected by the Joint Committee on Taxation to cost the government $574 billion from 2025 to 2029. The piece ties that subsidy to at least $1.15 trillion added to the national debt over 10 years, at a moment when America’s debt has just passed $40 trillion. That is the fiscal backdrop for any new tax cut Trump might embrace.
There is also a political wrinkle. Grover Norquist said last summer that he had urged Trump to make capital gains indexing to inflation happen with an executive order, another move designed to trim the tax bill on investment income. The Bipartisan Policy Center has already calculated that Trump’s One Big Beautiful Bill will cost the federal government $4.5 trillion in lost revenues over a decade, and DOGE’s cuts to the federal workforce were carried out with Trump’s blessing and encouragement. Put together, those moves point in one direction: less revenue, not more.
Whether Trump actually adopts either proposal is still the unanswered part. For now, Kudlow’s $2 million figure is only a public trial balloon, but it is a revealing one. It shows how a tax cut aimed at home sales can be framed as middle-class help while moving the code still farther toward the rich.
