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A growing number of Utah homeowners could face a costly surprise when they go to sell. According to new data from the National Association of Realtors®, 61.2% of homeowners in the state have built up home equity beyond the $250,000 federal capital gains tax exclusion for individuals. Another 16.1% have surpassed the $500,000 threshold for couples—potentially putting a significant portion of their profit at risk.
Part of the problem is that the IRS exclusion hasn’t been updated since 1997. Over that time, national home prices have surged more than 260%. In a state like Utah, where appreciation has outpaced wages, more homeowners are now getting hit with unexpected tax bills.
Utah taxes capital gains as ordinary income at a flat rate of 4.5%. While relatively moderate, that rate adds up fast when layered on top of federal capital gains taxes. The result can be tens of thousands shaved off a home sale profit.
Appreciation that comes with a price
In fast-growing areas like Salt Lake City, Provo, and St. George, real estate values have soared. Homes that once sold for under $200,000 now often go for $500,000 or more. That’s great for building wealth—but risky when it comes time to sell.
The home equity tax kicks in when profits from a home sale exceed the IRS’s outdated cap. For longtime owners, especially retirees, that can mean a major tax burden they never planned for.
This leads to what housing economists call the “stay-put penalty.” Homeowners delay selling to avoid triggering the tax. That keeps inventory tight and makes it harder for new buyers to find homes.
(Realtor.com)
How Utah Compares in the West
Utah’s 61.2% exposure rate for individuals is among the highest in the Mountain West. It ranks just above Colorado (59.5%) and Arizona (48.5%), both of which have seen similarly aggressive price growth. Neighboring states like Idaho (54.9%) and Nevada (43%) also report high levels of tax exposure.
At 16.1%, Utah’s share of joint homeowners over the $500K cap is higher than Oregon (12.9%) , but below Washington (24.7%) and Montana (18%). That makes it one of the more heavily taxed markets in the region for long-term owners.
The capital gains tax on real estate has evolved from a niche concern to a middle-class issue. In Utah’s booming cities, appreciation now comes with strings attached.
The view toward 2035
Looking ahead, nearly 70% of U.S. homeowners are expected to exceed the $250,000 capital gains limit by 2035. In Utah, where property values continue to rise quickly, that number could go even higher.
NAR projects the average federal tax liability for sellers over the limit could reach $74,708. That’s a heavy hit for homeowners relying on their equity to fund retirement, care, or relocation.
There’s momentum behind the More Homes on the Market Act, a federal proposal to double the exclusions and tie them to inflation. Supporters say it would unlock equity and improve inventory across constrained markets.
Meanwhile, Representative Marjorie Taylor Greene from Georgia, introduced a bill on July 10 that, if passed, would eliminate federal taxes on home sales entirely.
“No more taxing the American dream,” she wrote on X “Families who work hard, build equity, and sell their homes shouldn’t be punished with a massive tax bill.”
Known as the No Tax on Home Sales Act, the bill would eliminate the federal capital gains tax on the sale of primary residences—a measure that the Republican congresswoman said would help homeowners, including those in Utah, struggling with affordability issues and encourage mobility in the U.S. housing market.
This article was produced with editorial input from Dina Sartore-Bodo, Gabriella Iannetta, and Allaire Conte.