When Austin’s housing market peaked in 2021, thousands of homeowners watched their property values climb to heights that felt permanent. Then came the correction — sharp, fast, and humbling. Homes that had peaked at $700,000 were drawing offers of $525,000. Rather than accept that loss, many owners made a practical decision: rent the place out, wait for the market to recover, and sell later.
It was a reasonable call at the time. But federal tax law gives homeowners a limited window — generally three years — to sell a former primary residence and qualify for a capital gains exemption. For many Austin homeowners who made that switch in 2022, that window is already closing. And according to Kasey Jorgenson, broker and founder at Jorgenson Real Estate, most of them don’t realize it yet.
The Clock Is Running
The IRS allows homeowners to exclude up to $250,000 in capital gains — $500,000 for married couples — when selling a primary residence, provided they lived in the home for at least two of the five years before the sale. For homeowners who moved out in 2022 and began renting, that two-year residency requirement is already satisfied. But the five-year window is finite, and once it closes, the exemption disappears.
Jorgenson has watched this play out across his client base. Only 65% of Austin sellers last year successfully closed transactions. The rest withdrew listings, held their properties, or converted homes to rentals — often without fully accounting for the tax implications of waiting too long. For a homeowner sitting on a property that appreciated significantly before the correction, the difference between selling inside and outside that window could be tens of thousands of dollars.
What Happens Next
Jorgenson predicts that 2027 and 2028 will bring a wave of new inventory to Austin, as the five-year capital gains window closes for homeowners who converted to rentals in 2022 and face a sell-or-lose-the-exemption decision. That concentration of motivated sellers entering the market in a short window will add meaningful inventory to an Austin market that is already more balanced than most of the country.
For buyers, that’s worth watching. Austin currently sits at four to six months of supply — roughly the threshold for a balanced market — already a stark contrast to the inventory-starved conditions driving national headlines. A wave of deadline-driven sellers would push that number higher, potentially giving buyers more leverage than they’ve had since before the boom.
The condo segment is already showing what that pressure looks like at scale. In some areas, condo inventory listed for sale has reached 10 to 12 months of supply. Many of those owners, unable to sell at desired prices, converted their units to rentals instead, saturating the rental market and driving down both rents and resale values simultaneously. It’s a preview of what broader residential inventory could look like if the 2027 wave arrives as Jorgenson expects.
The Better Path Forward
For homeowners in this position, the decision isn’t simply whether to sell — it’s whether the cost of waiting outweighs the benefit. In some cases, holding makes sense. Austin is expected to see modest appreciation of around 2% to 2.5% annually over the next several years, and owners with strong rental income may find the math still favors patience. But for those whose rental returns have eroded — a pattern Jorgenson sees frequently, with some landlords watching monthly income drop from $2,400 to $1,900 on properties that have also lost value — waiting risks compounding a loss that is already significant.
The most important step, Jorgenson says, is running the numbers before the window closes rather than after. That means understanding exactly when the five-year exemption expires, what the property would realistically sell for today, and what the tax bill looks like on either side of that deadline. For many Austin homeowners, that conversation is already overdue.
About the Expert: Kasey Jorgenson is the broker and founder of Jorgenson Real Estate, a veteran-owned independent brokerage in Downtown Round Rock, Texas, and serving clients across Austin and Central Texas.
This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.
