In Alaska, where homeowners often stay for decades, property values have climbed steadily—especially in urban hubs like Anchorage and Juneau.
But now, many long-term owners are facing an unpleasant surprise when they go to sell: a large chunk of their home equity may be subject to taxes.
New data from the National Association of REALTORS shows that 22.5% of Alaska homeowners exceed the $250,000 capital gains exclusion for individuals, while 2.7% go beyond the $500,000 exemption for married couples filing jointly. These thresholds haven’t changed since 1997, even though home prices have surged over 260% nationally during that time.
Home appreciation is outpacing tax limits
The federal government allows homeowners to exclude $250,000 in profit ($500,000 for couples) when they sell a primary residence. But because those limits haven’t been indexed to inflation, a growing number of sellers find themselves paying taxes on equity they didn’t think was taxable.
Had the exclusions been updated for inflation, today’s caps would be closer to $660,000 for individuals and $1.32 million for couples. Instead, Alaska homeowners are finding that decades of appreciation could trigger capital gains taxes on real estate, even in a state with no personal income tax.
And while Alaskans avoid a state-level tax bill, they’re still on the hook for federal capital gains. Depending on the sale amount, federal taxes can reduce their net proceeds by tens of thousands of dollars.
Alaska’s middle-of-the-pack risk among Western states
Compared to nearby Western states like California, where over 60% of homeowners exceed the federal caps, Alaska’s 22.5% looks modest. But it still reflects more than 40,000 households who could face unexpected tax exposure.
The issue is especially acute in cities where home prices have jumped over the last decade. And many of those affected are older owners who bought decades ago, stayed in their homes, and never thought they’d have to pay capital gains tax on the sale of their home.
That sticker shock has made some residents reluctant to sell, even when downsizing would make sense. Experts call it the “stay-put penalty.” Homes that could be resold to first-time or move-up buyers are staying off the market, tightening supply.
Looking ahead to 2035
This issue is about to get worse. Projections show that by 2035, nearly 43% of Alaska homeowners will exceed the $250,000 exemption, and 9.2% will surpass the $500,000 mark.
With values continuing to climb, more sellers will find themselves grappling with how much they owe in capital gains taxes.
The ripple effect extends across the market. When older homeowners stay put to avoid taxes, it stalls turnover. Younger buyers face even tighter inventory, and prices remain high. It’s one reason analysts warn the housing market is increasingly locked.
Reform could ease the burden
Real estate advocates are pushing for updates to the law. The proposed More Homes on the Market Act would double the exemption limits and adjust them for inflation. That would reflect today’s home values—and help remove a major disincentive to sell.
“Equity shouldn’t be a trap,” says Shannon McGahn, chief advocacy officer for the National Association of REALTORS® in the report. “It should be a stepping stone for the next chapter.”
In the meantime, Alaska homeowners considering a sale—especially those who’ve owned their homes for decades—should consult a tax advisor. If the property was inherited, it’s also important to understand how to avoid capital gains on inherited property, which may offer relief in some situations.
Until the law catches up, more Alaskans will find that selling comes with a financial catch—and staying put might not be the cost-free solution they expected.
