If the US Scraps Capital Gains Tax on Home Sales, What Happens to Canadian Real Estate?

As of August 2025, Donald Trump said he was considering eliminating the capital gains tax on home sales in the United States. If it happens, the first effect lands on American home prices. The second could reach Canada: more American capital looking at Toronto and Vancouver, Canadian money tempted south, and pressure on Ottawa to offer tax relief of its own.

I am Moe Asgarian, a Principal Real Estate Broker in Toronto with RE/MAX, ranked 47th worldwide inside the company. Questions about American tax changes come up in my own client meetings often enough that the mechanics are worth laying out properly rather than in headlines.

What Trump actually said about the capital gains tax on homes

In a news interview shortly before August 2025, Donald Trump said he was thinking about removing the tax on profit from home sales in the United States altogether. His words were that they were looking at zeroing capital gains tax on homes. Reaction in the United States in that period was immediate.

It did not arrive out of nowhere. A proposal had already been put forward in the United States before August 2025 saying that when someone sells their principal residence, no capital gains tax should be owed. Whether the administration would follow through was still an open question as of August 2025, and that uncertainty is the whole story for now.

How US capital gains tax on a home sale worked as of August 2025

Under the rules as they read in August 2025, if you sold a home in the United States for much more than you paid you might owe tax on part of that gain, calculated after deducting transfer costs, renovations and other expenses tied to the property. There were also carve-outs that let some owners avoid the tax entirely, and those are a separate subject. Set them aside and assume someone selling because they want out of real estate investing and do not plan to come back any time soon.

The rest of the August 2025 rules worked like this. Sell less than a year after buying and the gain was taxed as ordinary income, which is similar to the rule Justin Trudeau's government brought in Canada, where selling within a year of closing adds the gain to your income. Under those same August 2025 rules, if you lived in the home at least 24 months out of the previous five years, consecutive or not, exemptions applied: up to $250,000 of gain exempt filing single, and up to $500,000 for a married couple filing jointly. Gains above those August 2025 caps faced long term capital gains tax at a rate that depended on your income. All of that applied to a principal residence. A second home, a rental or an investment property was treated differently.

Who would benefit most if the tax disappeared

Three groups carried most of this tax as of August 2025. Owners in expensive areas where home values climbed steeply in the years before 2025. People who stayed in one home for decades while nominal prices rose around them. And high income, high net worth owners holding very expensive homes.

The scale is not small. A study cited as of August 2025 found about 29 million people, close to a third of American homeowners, with gains large enough to pass the $250,000 cap, and about 8 million, roughly one in ten, who could pass the $500,000 cap. So as of August 2025 this was a serious tax and a very large number of households.

How a US tax cut could move money into Canadian real estate

Some analysts, writing as of August 2025, said that if the American government cuts or removes the tax on home sale profits, the first effect lands on US home prices, the second on investment flows into Canada, and the third on the federal government here, which could face pressure to put its own tax exemptions in place for investors in Canada.

The sequence runs like this. Capital rushes into American property in the short term. When this rumour appeared in the summer of 2025, Home Depot stock jumped even though its sales over the previous three months had been weak and its revenue report came in below expectations, because the market expected money to flow toward property and construction. If US prices then start climbing quickly, an American investor may sense bubble risk and ask why they should buy into that, and look instead for a safer market. A lower tax bill also leaves more cash in investors' hands, which encourages them to look outside the country. Toronto and Vancouver are the obvious destinations, markets that stay active with steady demand, and as of August 2025 the US to Canadian dollar exchange rate was very favourable for American buyers, which made property here cheaper for them.

The risk running the other way for Canada

There is a second reading of this, and Canadians should sit with it. If gains on American real estate become effectively tax free, Canadian investors may move their money south to pay less tax or none at all. That is not hypothetical. Over the first six or seven months of 2025, a great deal of Canadian capital went into the United States across different sectors, with Canadians investing there rather than at home.

That outflow is the pressure point. It could push the federal government to change how capital gains and real estate income are taxed in Canada, in order to encourage people to invest here instead. As of August 2025, Pierre Poilievre and the Conservatives were pushing the Liberal government in exactly that direction, arguing for rule changes and tax exemptions that would bring investors back into Canadian real estate and help the economy. If a decision does come out of Washington, this is the part of the story to watch at home.

If you are weighing an investment property on either side of the border, or deciding whether to buy or sell in Toronto while this is unsettled, fill out the form at the bottom of this page or book a free consultation and we can go through it together. Stay well and take care.