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In Kansas, the steady appreciation of home values over the past few decades has been a financial boon for many residents—but it may come with a tax sting. More than 15% of homeowners are now at risk of facing a hidden home equity tax when they sell, due to outdated federal capital gains rules that haven’t been adjusted for inflation in more than 25 years.
According to the National Association of REALTORS®, 15.3% of Kansas homeowners have exceeded the $250,000 capital gains exclusion available to single filers. Another 2.5% have gone beyond the $500,000 exclusion for married couples filing jointly.
With growing demand in areas like Wichita, Overland Park, and Lawrence, the number of sellers affected by the tax is only expected to climb.
A policy that hasn’t aged well
The capital gains tax exclusion was established in 1997 to help protect middle-class homeowners. It allows individuals to exclude $250,000 of profit on the sale of a primary residence, or $500,000 for couples. But despite more than 260% appreciation in home values nationwide, these caps have never been increased.
Had the exclusions been adjusted for inflation, they would now exceed $660,000 for individuals and $1.32 million for couples. But in Kansas, even modest long-held homes may now trigger capital gains tax liabilities—not because the properties are lavish, but because homeowners have stayed in place long enough to build equity.
Kansas treats capital gains as regular income, with a top marginal rate of 5.7%. When combined with federal taxes, the bill can easily total tens of thousands—cutting deeply into retirement savings or future housing plans.
Modest homes, unexpected bills
Kansas isn’t known for million-dollar listings, but that hasn’t prevented many homeowners from crossing the federal thresholds. NAR estimates show that sellers who exceed the $250,000 limit will owe tax on an average of $96,304 in gains. For those over the $500,000 threshold, the average taxable amount rises to $119,476.
These are not isolated cases. In counties like Johnson and Sedgwick, appreciation over time has pushed more homes into taxable territory—even for retirees or families who bought decades ago.
Faced with this surprise tax burden, many homeowners are choosing not to sell at all. This behavior—known as the “stay-put penalty”—has a ripple effect across the market, reducing available inventory and driving prices even higher.
A sharper tax bite by 2035
Looking ahead, tax exposure in Kansas is expected to grow sharply. By 2035, NAR projects that 44.4% of homeowners in the state will exceed the $250,000 exemption, and 11.9% will surpass the $500,000 limit.
That means nearly half the state’s home sellers could be facing a surprise tax bill just a decade from now. It’s a key reason why experts warn the housing market is stagnating, especially in states where appreciation has quietly outpaced outdated policy.
A solution to unfreeze the market
To correct the problem, housing advocates are backing the More Homes on the Market Act—a bipartisan bill that would double the capital gains exclusions and tie them to inflation.
“Equity shouldn’t be a trap,” says Shannon McGahn, chief advocacy officer at the National Association of REALTORS®. “It should be a stepping stone for the next chapter”.
In the meantime, Kansas homeowners—especially those with long-term appreciation—should review how capital gains tax applies to real estate and consider financial planning before listing. With the right knowledge, more sellers can protect their gains—and their next move.
This article was produced with editorial input from Dina Sartore-Bodo, Gabriella Iannetta, and Allaire Conte.