The Unrealized Gains Tax Americans Already Pay

Background: What an Unrealized Gains Tax Is

An unrealized capital gain is an increase in an asset’s value that the owner has not cashed in. In simple terms: if a stock bought for $100 is now worth $150, the $50 gain is unrealized until the stock is sold.

Federal law generally taxes gains only at realization, meaning at the point of sale. The Biden administration’s fiscal 2025 budget proposed a 25% minimum tax on households worth more than $100 million that would count unrealized gains as income. Vice President Kamala Harris endorsed the idea during her 2024 campaign. It was not enacted.

Critics raised three main objections. The tax would fall on wealth that exists only on paper. Owners without cash might have to sell assets to pay it. And it would require the government to value assets that had not traded.

Supporters countered that deferral lets the wealthiest postpone tax indefinitely, particularly because heirs receive a stepped-up cost basis at death that erases the gain entirely.

How Property Taxes Are Calculated

Most local property taxes are ad valorem, Latin for “according to value.” An assessor estimates a property’s market value, subtracts any exemptions, and applies the local tax rate to the result.

New York runs a levy-based system. A school district, town or county first decides how much money it needs, called the levy. The rate is then set so that the jurisdiction’s total assessed value produces that amount.

In simple terms: under a levy system, rising home values across a district do not automatically raise total taxes. They change each owner’s share of a fixed pie. A home that appreciates faster than its neighbors takes a larger slice.

Since 2012, New York has capped annual levy growth at the lesser of 2% or inflation, outside New York City. The 2% limit has applied to school districts for five consecutive years. Local boards can override the cap, and overrides are rising: in an August 2026 report, State Comptroller Thomas DiNapoli found 45% of cities planned to exceed it in fiscal 2026, up from 13% in 2022. Counties rose to 24.6% from 3.5%.

In states where the rate stays fixed rather than adjusting to a levy, appreciation passes more directly into the bill.

Where the Comparison Holds

On four points, the property tax behaves like the tax its critics rejected at the federal level.

No sale is required. The bill arrives every year, measured against a market value the owner has not realized. Take a hypothetical home assessed at $500,000 with a 2% effective rate: the bill is $10,000. If the market lifts its value to $650,000 and the rate holds, the bill becomes $13,000. The owner has sold nothing.

It creates a liquidity problem. Assessments rise with the market, but income does not. Retirees on fixed incomes in appreciating neighborhoods are the classic “house rich, cash poor” case. Unpaid property taxes can end in a tax lien or foreclosure, which is the forced sale critics warned about in the federal debate.

The government sets the value. An assessor estimates a price no buyer has paid. The burden of proving it wrong falls on the owner, through a grievance or appeal.

Legislatures have already treated it as a problem. California’s Proposition 13, approved in 1978, limits assessment growth to 2% a year and resets value to market only when a property sells. Florida’s Save Our Homes amendment caps annual assessment increases on homesteads at 3% or inflation, whichever is lower. In simple terms, both rules tax a home closer to what the owner paid than to what it would sell for today, moving the tax toward a realization basis.

Where the Comparison Breaks Down

The parallel is structural, not exact. Four differences matter.

It taxes the whole value, not the gain. A house bought for $500,000 and still worth $500,000 owes property tax every year. A capital gains tax on that house would be zero. Strictly, the property tax is closer to an annual wealth tax on one asset than to a gains tax.

It does not reverse when values fall. A gains tax shrinks when an asset loses value. A property tax bill may dip, but in levy-based systems the rate can rise to keep total revenue whole.

Levy systems blunt the effect. In New York, broad appreciation mainly shifts shares among owners, and the 2% cap limits growth in the total. Rising values alone do not raise the overall tax take.

It is a benefit tax. Property taxes fund schools, police, fire protection and roads tied to the property itself. Defenders argue owners are paying for services that help sustain their home’s value, which a federal tax on investment gains does not do.

The property tax is also far older. It predates the federal income tax, established in 1913 with the 16th Amendment, so describing it as a new form of taxation would be inaccurate.

Three Examples

Nassau County: a mark-to-market moment

Nassau’s assessment rolls were frozen for eight years under County Executive Edward Mangano, leaving the tax burden unevenly spread. His successor, Laura Curran, reassessed every property. In the first year of new values, 65% of homeowners paid more in school taxes. The Curran administration said more than 10% of those increases came from school district budget decisions, not the reassessment itself.

The county adopted a five-year phase-in to soften sudden increases. In June 2026, Albany extended Nassau’s assessment and review provisions through June 30, 2028 (A11487, Chapter 154).

Nassau shows both sides of the argument. Owners whose homes had appreciated faster than their neighbors’ saw bills rise because of value they had never cashed in. But the total levy was set by budgets, not by the market.

Florida: Amendment 3 on the Nov. 3 ballot

Florida voters will decide Amendment 3, which would raise the homestead exemption for non-school property taxes to $150,000 in 2027 and $250,000 in 2028, then index it to inflation. It needs 60% approval.

The stakes for local government are large. Property taxes made up 74% of local tax collections in Florida in fiscal 2023, according to the Tax Foundation. The nonpartisan Florida Policy Institute estimates the amendment would cut local revenue by nearly $12 billion a year. Republican gubernatorial nominee Byron Donalds has said he will pursue full repeal of homestead property taxes whether or not the amendment passes.

California: Proposition 13

California has tested the realization model for nearly five decades. Because assessments reset to market value only at sale, long-time owners often pay far less than new buyers of identical homes next door. That gap is the trade-off of taxing closer to realization: it protects incumbents and shifts the burden toward recent buyers.

Impact: The Largest Local Tax

State and local governments collected $826.8 billion in property taxes in 2025, according to Census Bureau data compiled by the National Association of Home Builders. That was 37.5% of all state and local tax revenue, more than sales or individual income taxes.

Property tax revenue has grown for nine straight quarters, rising 15.2% since the second half of 2023.

The burden falls hardest on owners whose home values have outpaced their incomes: long-tenured residents in appreciating markets, retirees and anyone whose wealth is concentrated in a single house. Renters bear part of the cost indirectly, through rents that carry their landlords’ tax bills.

Analysis: The Consistency Question

The comparison puts both sides of the federal debate in an awkward position.

For critics of the 2024 proposal, the objections were framed as principle: government should not tax gains an owner has not realized. If that principle holds, it applies to the residential property tax, and at a far lower threshold. The federal plan would have reached only households worth more than $100 million. The property tax reaches nearly every homeowner.

Federal law adds a further contrast. Under Section 121 of the tax code, a homeowner can exclude up to $250,000 of gain on the sale of a primary residence, or $500,000 for married couples. Federal law shelters much of a home’s gain even after it is realized. Local law taxes the home’s full value every year it is not sold.

For supporters of taxing unrealized gains, the property tax offers evidence that annual valuation can be administered at scale. But it also shows the political cost. Proposition 13, Save Our Homes, New York’s levy cap and Florida’s Amendment 3 are all voter responses to taxes on value owners had not cashed in.

The practical policy debate, then, is not whether to tax unrealized value. Local governments already do. It is how far to cap, phase in or defer that tax. Tools already in use include assessment caps, income-based relief known as circuit breakers, and senior deferral programs that postpone the tax until the home is sold. In simple terms, a deferral program converts the property tax into a tax paid at realization.

Conclusion

Calling the property tax an unrealized capital gains tax overstates the case. It taxes total value rather than gain, it funds local services, and in levy states like New York the market does not set the total bill.

But the core mechanics match. Owners pay annually on government-estimated value they have not converted to cash, and they can lose the asset if they cannot pay. The objections raised against taxing unrealized gains in Washington apply, in modified form, to a tax that already collects more than $800 billion a year.

Florida’s Nov. 3 vote will be the next test of how much of that tax voters are willing to keep.

Key Takeaways

Property taxes are levied annually on market value the owner has not realized, which is the defining feature of an unrealized gains tax.
The comparison is imperfect: property tax falls on total value, not gain, and funds local services tied to the property.
In levy-based states such as New York, rising values shift each owner’s share rather than raising the total, and a 2% cap limits levy growth.
Prop 13 and Florida’s Save Our Homes cap assessments, moving the tax closer to a realization basis.
Florida’s Amendment 3, on the Nov. 3 ballot, would raise the non-school homestead exemption to $250,000 by 2028 and needs 60% to pass.
State and local governments collected $826.8 billion in property taxes in 2025, 37.5% of their tax revenue.