The debated elimination of capital gains tax (or significant increase in the $250,000/$500,000 deduction on sale of a personal residence) needs urgent attention.  The issue should be actively and aggressively pursued by citizens and their federal and state legislators.  The present law is unwise and discriminatory, and it substantially interferes with operation of the U.S. economy and with achievement of our citizens’ personal home-ownership goals.

First, the present deduction benefit after a minimum two-year hold significantly discriminates against those who have held their residences for longer periods of time.  Someone who has owned his home for say 20 years will likely have suffered from far more inflation than those who have owned their homes for only two years.  In fairness, should not a person who owns his residence for 20 years be entitled to the same aggregate deductions ($2,500,000/$5,000,000) as a house contractor who builds his own residences and serially moves into one of his new houses ten times (every two years) during the same 20-year period?

Second, failure to eliminate the tax (or increase the deduction) materially adversely affects decisions whether to move, upgrade, remodel, or downsize, along with whether to move to a senior care facility.  Even one decision to sell can have an enormous downstream ripple effect.  Any given sale will lead to a purchase and can lead to sale of a home by the purchaser and so on down the line.  

With a reform in this area, economic activity would expand geometrically.  Substantial increases would occur in the businesses of and employment by real estate brokers and sales agents, contractors and subcontractors, moving companies, furniture and interior design companies, architects and engineers, and mortgage lenders.  Encouragement of just one sale could, and probably would, significantly increase many downstream transactions and actually generate significant income tax increases paid by real estate brokers, contractors, and other businesses and their employees.  The trickle-down and other benefits to the economy cannot be overstated.

Third, those who have held their homes the longest, the elderly, would obviously be the most highly motivated to sell by elimination of the homestead capital gain tax, or by a significant increase in the deduction whereby anyone who has held a home for decades would be entitled to a significantly greater and more equitable benefit than the $250,000/$500,000 benefit enjoyed by those who have held their homes for a mere two years.

Fourth, the special situation for the elderly should be considered.  Nearness to death presents extremely strong motivation for them to refrain from selling and to retain ownership until death so that their beneficiaries can receive a stepped up basis in the property for tax purposes.  That motivation results in national prevention of the sale of a large block of homes and delay in adding that segment to the housing stock available for purchase.

America needs to eliminate capital gains tax on sale of homesteads.

Image via PickPik.