Getty Images
Maine’s serene coastlines and rising home values have helped thousands of residents build equity—but now, that financial security may come with an unexpected price.
Due to outdated federal capital gains limits, nearly 4 in 10 Maine homeowners risk being taxed on the profit from their home sale.
According to the National Association of REALTORS®, 39.2% of homeowners in Maine exceed the $250,000 capital gains exclusion for single filers. Another 8.3% are over the $500,000 limit for joint filers. The issue is particularly acute in coastal areas like Portland, Camden, and Bar Harbor, where long-term appreciation has outpaced national averages.
A rule that hasn’t kept up with home prices
The capital gains exclusion was designed in 1997 to help homeowners avoid taxes when selling their primary residence. At the time, the $250,000 (individual) and $500,000 (joint) limits covered most home sales. But those limits have never been adjusted for inflation.
Since 1997, U.S. home prices have increased over 260%. In Maine, values have jumped sharply in recent years—pushing many modest properties past those long-frozen thresholds. Today, sellers who’ve lived in their homes for decades may face capital gains tax on real estate, even if they’ve done little more than stay put.
Maine’s state tax code doesn’t offer relief either. Capital gains are taxed as ordinary income, with rates up to 7.15%. That, combined with federal tax obligations, creates a meaningful financial burden for retirees and long-term homeowners.
Surprising tax bills for everyday homes
This isn’t just a problem for luxury real estate. According to NAR data, Maine homeowners exceeding the $250,000 cap face taxes on an average of $140,329 in gains. For those above $500,000, the average taxable amount climbs to $175,849.
That could translate into a tax bill of tens of thousands of dollars—potentially affecting plans to downsize, relocate, or retire. Many homeowners only discover their exposure late in the process, which can derail timing or lead to difficult decisions.
Faced with this hidden cost, more sellers are deciding not to sell at all. Economists refer to this behavior as the “stay-put penalty.” It restricts the number of homes available on the market and drives prices higher—especially in popular vacation and retirement areas.
Maine’s future exposure is even greater
The tax burden on sellers is expected to increase dramatically in the next decade. By 2035, NAR projects that 81.8% of Maine homeowners will exceed the $250,000 exclusion. And 44.4% will cross the $500,000 mark.
Those projections mean the majority of sellers in Maine will face some level of tax exposure. That’s a key factor in the cooling of the national housing market, especially in high-appreciation areas where equity is locked up by tax penalties.
A push to update the policy
Real estate professionals and lawmakers are advocating for the More Homes on the Market Act—a bipartisan bill that would double the exemption limits and tie them to inflation, restoring the original intent of the tax code.
“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, Maine homeowners—particularly those in hot coastal markets—should consider speaking with a tax advisor. Understanding how capital gains tax works on your home sale could help preserve more of the equity you’ve earned—and ensure your next move is on solid footing.
This article was produced with editorial input from Dina Sartore-Bodo, Gabriella Iannetta, and Allaire Conte.