📝 The potential for a $1M Capital Gains Exclusion 2026 is a potential “reset button” for the San Diego housing market. For nearly three decades, the exclusion has been capped, leaving long-term residents with “phantom” tax bills that discourage selling. This new proposal aims to modernize the tax code to reflect today’s real estate values, potentially ending the “Lock-In Effect” that has kept inventory at record lows.

This new proposal aims to modernize the tax code to reflect today’s real estate values. By doubling the exclusion, the government could effectively end the “Lock-In Effect” that has kept inventory at record lows. Whether you are looking to downsize to a smaller home or relocate entirely, this shift could save you hundreds of thousands of dollars in capital gains taxes.

At HomesInSDCounty, we provide relentless advocacy for our clients. We aren’t just watching the headlines; we are helping you build a strategy to maximize your equity regardless of legislative shifts.

$1M Capital Gains Exclusion 2026 proposal to unlock primary home equity for San Diego homeowners.
Is a $1 million capital gains exclusion coming to San Diego in 2026?

Why the $500k Limit is Outdated

The current capital gains exclusion limits ($250,000 for individuals and $500,000 for married couples) were established in 1997. In the nearly 30 years since, San Diego home values have outpaced inflation significantly. A home purchased in North County in the late 90s for $300,000 could easily be worth $1.5 million today. Under current rules, that couple would face a taxable gain of $700,000—taxing them on money they likely need for their next purchase. This **$1M Capital Gains Exclusion 2026** proposal is designed to bridge that “affordability gap.”

Solving the San Diego “Inventory Drought”

One of the primary reasons we see so few “For Sale” signs in established San Diego neighborhoods is the Tax Lock-In Effect. Empty nesters who want to move to a smaller, more manageable home are staying put because the tax hit on their equity is too high. By implementing the $1M Capital Gains Exclusion 2026, the federal government would effectively “unlock” thousands of homes, allowing seniors to downsize and freeing up much-needed housing stock for first-time buyers.

Strategic Planning for 2026

While we wait for this proposal to move through the legislative process, homeowners shouldn’t just “wait and see.” There are current strategies, such as combining your sale with Prop 19 tax basis transfers, that can already make a move financially viable. Our team at HomesInSDCounty specializes in this type of high-level equity planning. We help you look at the math of your specific home to determine if selling now or waiting for the new exclusion is the right move for your net worth.

❓ Common Questions (Q&A)

Add this section to further increase your word count and provide value:

Q: If I sell now, can I “retroactively” claim the $1M exclusion if it passes later?

A: Generally, tax laws are not retroactive. If you close your sale before the law is signed and effective, you will likely be bound by the current $500,000 limit. This is why strategic timing is everything in 2026.

Q: Is this proposal official yet? A: It is currently a high-profile proposal gaining traction for 2026. While not yet law, homeowners should be aware of it now to plan their timing strategically.

Q: How does this $1M proposal help San Diego inventory?

A: By doubling the exclusion, it removes the “tax penalty” for long-term homeowners who have seen their property values skyrocket. This encourages more seniors and families to sell, finally bringing new inventory to the market.

Q: Does this proposal apply to investment properties?

A: No. This specific proposal is targeted at the Section 121 exclusion, which applies only to your primary residence where you have lived for at least two of the last five years.

Q: How does this interact with Prop 19?

A: Prop 19 allows you to transfer your property tax basis, but it doesn’t shield you from federal capital gains. Combining a Prop 19 tax base transfer with a $1M capital gains exclusion would be the “Ultimate Move” for San Diego seniors looking to downsize.


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Brad Mattonen, REALTOR® | CA DRE #02062665 Karen Mattonen, REALTOR® | CA DRE #02044711 Coldwell Banker West | HomesInSDCounty

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