Arizona lawmakers are considering legislation that would eliminate state income taxes on profits from selling a primary home, a move supporters say could help homeowners make life changes without worrying about tax consequences.
The Senate Finance Committee approved SB 1633 on Monday, moving the bill forward in the legislative process. The proposal, sponsored by Committee Chairman J.D. Mesnard (R-AZ), targets a specific tax that currently affects Arizona homeowners when they sell their residence.
The bill comes as Arizona faces a significant housing affordability crisis. AzFamily reported in July 2025 that households now need to earn around $122,578 annually to comfortably afford a typical Arizona home, a dramatic increase from about $71,881 needed in 2020.
Down payments typically range from 3% to 20%, meaning buyers need to put down between $13,000 and $90,000 upfront. Jeff Ostrowski, a real estate expert with Bankrate.com, noted that first-time homebuyers are now "closer to 40 years old than to 30," as rising costs force people to delay homeownership.
As of 2026, Arizona charges a 5.6% state sales tax, officially called the Transaction Privilege Tax. When you add local city and county taxes, most residents pay around 8.52% total, though rates vary from 5.6% to 11.2% depending on location.
The Proposals Initiative
Additionally, SB 1633 would remove the state capital gains tax for homeowners who have lived in their property for at least five years. Chairman Mesnard argued that the current tax creates unnecessary barriers.
"Taxing gains on a primary residence can trap people in homes that no longer work for them," Mesnard explained. "Seniors may delay downsizing. Families may stay in houses that are too large, too small, or too far from work. Workers may think twice about relocating for a better opportunity."
He added that removing the tax would allow families to "make decisions based on real life needs, not fear of a tax hit."
Supporters believe the bill could encourage more housing market activity as homeowners feel freer to sell. The changes would take effect in the 2027 tax year if the bill gains full legislative approval.
