Let’s go all the way back to 1997. It was then that Congress created the Capital Gain exclusion for a primary residence. For a Single taxpayer, it was $250,000 or $500,000 if you file a joint return with your spouse.
During this time the Social Security Cost of Living Increase has increased 59.8%.
California House representative Jimmy Panetta (D-CA) and Mike Kelly (R-Pennsylvania) introduced the “More Homes on the Market Act”. If passed, this bill would increase the capital gain exclusion on a principal residence to $500,00 for single filers and $1,000,000 for joint filers. This would be very welcome news to California homeowners.
The original Capital Gains exclusion was passed in 1997 with the Taxpayer Relief Act and has never been indexed for inflation. Capital gains taxes run anywhere from 15-20% depending on your income. It’s certainly reasonable to think cutting the Capital Gains tax would free up some housing inventory. We have spoken with several people who would like to move to a smaller house in a different location but the taxes are keeping them where they are. Also, consider the local tax money that would now be available if some of the 20+ year homes are now turning over. Being a real estate broker I have had discussions with several homeowners who would sell their property today but the thought of paying those prohibitively high capital gains taxes prohibit it.
Consider the homeowner who purchased their property around 1960. The property tax bill was a little over $1000 per year. The elderly homeowner can no longer take care of themselves so they are moved into a managed care facility. The surviving children can’t sell the house to pay the bills until the parent passes away. Whereas if they could sell without a tax penalty the new owner would now have a property worth $900,000 generating much more tax revenue for the City and State.
However, let’s continue jumping over the dollars to get to the dimes.
Will it pass? My guess is probably not. Those opposed will say it’s another benefit for the wealthy and in an election year, there are just too many other distractions.
It’s a shame you have to die so your heirs can reap your tax benefit. Death is the ultimate tax strategy, unfortunately, it is a big price to pay.