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A rising number of homeowners in North Carolina are in for a tax surprise when and if they decide to sell their abode.
According to a new analysis from the National Association of Realtors®, 33.9% of stand along owners now have more home equity than the federal capital gains exemption protects. Another 6.7% have gains that exceed the $500,000 threshold for married couples filing jointly.
The problem? The capital gains tax exclusion hasn’t changed since 1997. But home prices have jumped more than 260% in that time, turning long-term ownership into a potential tax liability.
In North Carolina specifically, the state taxes capital gains as income at a flat 4.75% rate. Combined with federal liability, that can mean a big bill for homeowners cashing out once they sell—especially for retirees and families who’ve lived in the same home for decades.
When equity turns into a penalty
Homeowners who stayed put and paid off their homes are the most exposed. Now, instead of reaping the rewards, they face a home equity tax if they sell. And that’s could very well stop many from moving.
This creates what economists call a “stay-put penalty.” Older owners hold on longer, which keeps homes off the market. And buyers—especially first-timers—feel the squeeze.
In fast-growing cities like Raleigh, Durham, and Charlotte, equity builds quickly. And it’s not just luxury properties that are affected. Even modest homes can trigger capital gains tax on real estate.
(Realtor.com)
Regional perspective and what comes next
Compared to neighboring states, North Carolina’s 33.9% exposure is higher than Virginia (35%) and Tennessee (36.1%). But it’s still below high-impact states like Florida. Still, as home values rise, more owners are being pushed over the line. And if the years continue to tick by without any change, the numbers will start to climb to dizzying amounts.
By 2035, national projections show nearly 70% of U.S. homeowners could exceed the $250,000 cap. In North Carolina, that would mean many more facing big tax bills on what was supposed to be their retirement cushion. The NAR projections forecast homeowners exceeding the $250,000 exclusion will rise to 75.1%, while 30.9% will surpass the $500,000 mark.
Lawmakers eye reform
To fix the issue, housing advocates are backing the More Homes on the Market Act—a proposal that would double the current capital gains exemptions and index 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”.
Until reforms take hold, Mississippi homeowners should become familiar with how capital gains taxes work. With thoughtful planning and professional advice, more sellers can keep the wealth they’ve built—and move into their next home with confidence.
This article was produced with editorial input from Dina Sartore-Bodo, Gabriella Iannetta, and Allaire Conte.