Frozen in place: How a 1997 tax law may be trapping Colorado’s senior homeowners

By Shaina Cole | Contributing Writer, Rocky Mountain Voice

A Centennial resident wrote to RMV earlier this year with a frustration he suspects many of his neighbors share — one shaped by decades spent in the same home. He has watched its value climb far beyond anything he imagined when he bought it. And now, as he weighs whether to downsize, he finds himself facing a tax bill on that appreciation — one shaped by a federal law whose core thresholds haven’t been updated in nearly 30 years.

“This realized gain could be used for moving into a more manageable home, pay for necessary home care if needed, help pay for insurance, medical, dental, medicine expenses and keep their quality of life,” he wrote.

His concern is not an isolated one. It reflects a structural problem — one increasingly documented by researchers, flagged by Congress, and felt by long-term homeowners across Colorado.

A Law That Time Left Behind

The starting point goes back to 1997. That year, Congress created what most people never had to think much about — a tax exclusion protecting homeowners from owing federal capital gains taxes when they sold their primary residence. 

Single filers got a $250,000 shield. Married couples got $500,000. For the housing market of the late 1990s, that covered nearly everyone. 

There was one problem: the exclusions were never indexed for inflation.

Nearly three decades later, they remain exactly where Congress set them. Adjusted for inflation alone, the thresholds would land around $475,000 for single filers and $950,000 for couples, economists say. But that doesn’t capture the full picture. When tied to real housing market gains, they could rise past $700,000 and $1.4 million, respectively, as noted in a Congressional Research Service report.

In 1997, the exclusions covered most home sales comfortably. By 2026, that’s no longer the case for a growing number of Coloradans.

Colorado Is One of the Hardest-Hit States

Walk the numbers and the problem comes into focus fast. 

Colorado’s median home price reached $593,000 in early 2026, with Denver close behind at $568,000. Salida, not a city anyone would call a luxury market, was approaching $800,000. The federal exclusion intended to protect ordinary homeowners from a large tax bill was set when none of those figures were anywhere close to reality.

The Rosen Consulting Group, commissioned by the National Association of Realtors, released a study in February 2025 placing Colorado among the states most acutely affected. The researchers found that nationally about 29 million homeowners — 34 percent of the total — could already have enough equity to exceed the $250,000 cap for single filers. Some 8 million more sit above the $500,000 joint-filer threshold.

In high-appreciation states like Colorado, the research projects those numbers will climb sharply. By 2030, more than 56 percent of homeowners nationally are projected to have equity exceeding the $250,000 exclusion. By 2035, nearly 70 percent could be above that threshold — and 20 states, including Colorado, are expected to have more than 40 percent of homeowners potentially facing tax consequences simply for having built equity in their homes over time.

The math becomes concrete quickly.

Consider a couple who bought a home in the Denver suburbs in the late 1990s for $180,000. Their home could be worth $800,000 today. That’s a gain of $620,000. The $500,000 exclusion covers most of it — but $120,000 is left exposed. That remainder is subject to federal capital gains tax at a rate of 15 percent to 20 percent, depending on income, and Colorado adds its own 4.4 percent flat tax on top. 

A gain that felt like a retirement cushion can start to look different once the math is done. Depending on their income, that couple could owe roughly more than $23,000 on what is, for most seniors, their primary asset and the centerpiece of their retirement.

Not Aging in Place by Choice

The financial consequence most directly felt by seniors isn’t a tax bill paid. It’s a decision never made. 

For the Centennial homeowner who first raised the concern, that hesitation is already real. “It makes you think twice about making a move,” he wrote, describing the uncertainty that comes with weighing whether to sell.

According to researchers with the American Enterprise Institute, many homeowners delay selling because of what’s called capital gains “lock-in”—the tax burden tied to appreciated homes. The longer hold times back that up. 

Since 2005, median tenure has grown from 6.5 years to 11.9 years in 2024 — a trend that is even more pronounced among seniors. Many are staying in homes that no longer fit their mobility needs, health circumstances, or practical lives — not because they want to age in place, but because the financial math of leaving has become punishing.

“Seniors in appreciating markets — those who’ve contributed decades to their neighborhoods — often can’t afford to sell because they’d be hit with unexpected tax bills simply for building equity over time,” NAR’s research concludes.

For the Centennial resident who wrote to RMV, the issue is deeply personal. He describes seniors who made sound financial decisions, stayed in their homes, built equity — and now find that the same equity they planned to use for independence in their later years is partially locked behind a federal threshold set before most of Colorado’s growth even occurred.

“I feel it is time to get this issue out to the public,” he wrote.

A Problem That Ripples Beyond Seniors

The lock-in effect doesn’t only affect older homeowners trying to downsize. It reshapes the entire Colorado housing market.

When long-term owners stay put, fewer homes come to market. Starter homes and mid-range properties that would typically flow from seniors downsizing to smaller homes remain occupied. That reduced inventory puts pressure on prices, making it harder for younger buyers to enter the market. The Rosen Consulting study calls it a “stay-put penalty” — a dynamic that freezes inventory, stifles market turnover, squeezes supply, and drives up prices for younger buyers.

NAR Chief Economist Lawrence Yun has noted that home equity and retirement accounts represent over 60 percent of household net worth for most Americans. In the last decade, the typical homeowner has accumulated more than $195,000 in wealth through price appreciation alone. That wealth, in theory, should give seniors flexibility. In practice, the capital gains exposure can make it difficult to access.

What Congress Is — and Isn’t — Doing

Two bills before Congress take direct aim at the problem. The more prominent of the two, the More Homes on the Market Act, was introduced by Rep. Jimmy Panetta in February 2025 with backing from both parties. It would push the exclusion to $500,000 for single filers and $1 million for married couples and include an inflation adjustment — something the original 1997 law never had. The bill has 93 House cosponsors, including 35 Republicans, and a Senate companion. It has not yet advanced out of the House Ways and Means Committee.

A more sweeping proposal, the No Tax on Home Sales Act, introduced by Former Rep. Marjorie Taylor Greene, would eliminate the federal capital gains tax on primary residence sales entirely. President Trump expressed openness to that idea last summer, saying, “We are thinking about no tax on capital gains on houses.”

Even with bipartisan support, neither bill has reached a floor vote.

Colorado Has Limited Levers to Pull

Unlike some tax provisions, Colorado cannot directly change the federal exclusion that drives most of the tax burden on home sales. The state does not have a separate capital gains exclusion for primary residences that it can independently adjust. In Colorado, capital gains are typically taxed as ordinary income at a flat 4.4 percent rate, applied to any portion of a home sale gain above the federal exclusion.

For Colorado’s long-term homeowners, any meaningful relief would likely have to come from Congress, though state lawmakers could still explore narrower tax changes at the margins.

When Staying Becomes the Harder Choice

The Centennial resident who wrote to RMV closed his letter with a simple observation: “We are all going to reach this pinnacle in our lives.”

He is right that the issue is not limited to wealthy homeowners or coastal markets. It reaches into communities across Colorado — into the suburbs of Denver, into mountain towns, into places where a home bought for $150,000 thirty years ago is now worth ten times that amount. And where the owner who paid property taxes, maintained the property, and stayed for decades is now discovering that leaving carries a cost the law never anticipated.

The capital gains exclusion was designed in 1997 to protect ordinary homeowners. The question now being asked in Congress — and in letters to local news organizations — is whether a threshold set nearly three decades ago still does what it was meant to do.

The data suggests, increasingly, that it does not.