For thousands of Delaware homeowners, years of building equity could turn into an unexpected tax burden. Thanks to a capital gains tax rule that hasn’t been updated since 1997, more than one-quarter of owners in the state now face the possibility of being taxed on a large portion of their home sale proceeds.
According to the National Association of REALTORS (NAR), 25.8% of Delaware homeowners have exceeded the $250,000 capital gains exclusion allowed for single filers.
Meanwhile, 3.9% have gone over the $500,000 threshold for married couples filing jointly. These numbers are rising as appreciation continues in cities like Wilmington and coastal communities across the state.
Exemption limits that haven’t kept up with prices
The capital gains tax exemption lets sellers exclude $250,000 in profit ($500,000 for couples) on the sale of a primary residence. But these limits have never been tied to inflation. Since their introduction in 1997, home prices have climbed more than 260% nationally.
If the exclusion caps had kept pace, they would now sit at around $660,000 and $1.32 million. Instead, Delaware homeowners—many of whom bought their homes decades ago—are now finding themselves subject to capital gains taxes on their home sale, even when their gains reflect long-term ownership rather than market speculation.
Delaware taxes capital gains as regular income, with a maximum rate of 6.6%. When combined with federal taxes, homeowners can see a significant portion of their profits lost—especially if they cross the threshold unexpectedly.Homeowners Face a Stiff Penalty for Staying in Their Homes Too Long—a Hidden Home Equity Tax
Growing risk for long-term owners
The risk is particularly acute for older homeowners who’ve been in their homes for 20 or 30 years. Many are discovering that the nest egg they expected from a sale is now subject to taxes they didn’t plan for. And in a competitive market with rising home values, more sellers will cross those limits every year.
This dynamic is discouraging some owners from listing their homes at all—a trend housing experts refer to as a “stay-put penalty.” That means fewer available listings for first-time buyers and growing families, fueling tighter inventory across the state.
Many sellers don’t realize they’re even close to the limit until the sale is already in motion. Understanding how capital gains tax applies to real estate is now a critical part of preparing to sell.
A glimpse into 2035
Things don’t look better when looking ahead, either.
By 2035, a staggering 76% of Delaware homeowners are projected to surpass the $250,000 capital gains exemption, according to the National Association of REALTORS®. Nearly 28% will blow past the $500,000 mark. These eye-opening figures put Delaware on the front lines of a looming tax storm—making it one of the states where homeowners face the sharpest rise in tax exposure over the next decade.
These projections reflect both rising property values and the stagnation of the current tax caps. And unless the law is updated, this trend will continue to restrict inventory and slow housing turnover—creating ripple effects throughout the market.
Calls for a modernized tax code
To fix the issue, housing advocates support the More Homes on the Market Act, a bipartisan proposal that would double the exclusion limits and index them to inflation.
“Equity shouldn’t be a trap,” says Shannon McGahn, chief advocacy officer for the NAR. “It should be a stepping stone for the next chapter”.
Until those reforms are in place, Delaware homeowners should consult with a financial advisor, especially if they’ve owned their home for a long time or expect to earn significant profit from a sale. Awareness is key—because when it comes to equity, what you keep may depend on what you plan for
