This seems like a no-brainer of a bill. It essentially raises the amount of realized profit on a house sale you can exclude from capital gains tax from $500,000 for joint filers to $1,000,000. The amount hasn’t been changed since 1997, yet housing costs have skyrocketed since then, resulting in a huge tax bill when you sell a home you’ve owned for years and has appreciated considerably in value.
I am crossing my fingers it’ll pass, and soon, too. We were about to sell our home, but if we hold off a bit, we won’t be socked with a giganto tax bill. Is there any way to find out a predicted timeline for the passage of this bill?
It sounds like a no brainer issue that everyone can agree upon in a common sense world. Thus, it most likely will be politicized, dragged out and tied to another bill as a bargaining chip to own the other side.
I hope I am wrong, but it is hard to be optimistic about anything coming out of congress that actually makes sense anymore. Let alone predict how long something will take.
Yeah, I wouldn’t say this bill is a no-brainer. It gives a break to people who fall into the category of “haves”, and to my mind that’s not great tax policy.
(Regardless of what someone’s annual income is, being able to clear more than half a million dollars with a single business transaction puts them in a somewhat privileged position.)
Of course, I suppose if someone is dead-set against paying the tax, they could always sell at a price that will give a profit of no more than $500K…
If we treated capital gains logically, they’d be inflation corrected versus the CPI. Whether the item of capital being sold is a stock, a rare antique, or a residence.
The large exclusion on houses started out mostly as a way of avoid taxing people on a numerical gain that was predominantly cumulative inflation over 20+ years, and very little actual inflation-corrected economic gain. And as a gift to middle class taxpayers who’d been the “salt of the earth lived in one now-paid-off house their whole adult life and now approaching their dotage needing some cashflow as they downsize.”
For sure the bigger the exclusion the more the benefit flows to richer people, and / or to people who happen to live in very inflated markets. The one thing that might get this bill through Congress is the former crowd are mostly Rs while the latter regions are mostly D. So there’s some bipartisanship involved, albeit for not-very-bipartisan reasons.
Another point is that because this bill only affects long-ish holdings and/or very hot markets, it’s not doing anything for middle-class first-time home buyers in general. Those folks have the same affordability problems they’ve always had.
Lastly: As with any legislation intended to grease some economic skid, it has the paradoxical effect of slamming on the brakes instead the instant the legislation is considered publicly. Nobody wants to act just before the impending law passes that would improve their situation.
So suddenly folks who were resigned to paying some capital gains with their sale change their minds and pull their property off the market. Only when certainty returns because the legislation has either been signed into law or has been roundly defeated will the affected market begin moving again. Meantime, it’s total constipation.
All, the no brainer comment is meant to account that there has been no change since 1997 and that a change is could be justified due to inflation. That and $1M is not what it used to be., my simple home sold for $147K in 1998 and is now valued at $400K. Lastly, congress is made up of people that cater to well off people so why stop now? This move plays to their base, nothing about being fair.
The bill was also introduced in the previous Congress and went absolutely nowhere. And while there are cosponsors from both parties, most of them are Democrats (specifically from California*), so I would not rate it as having better chances now.
*The fact that 13 of the 20 cosponsors are from California is especially galling IMO. Prop 13 already lets long-term homeowners cheat on their property taxes. They really need this too?
If that’s the case, your gains are far less than $500K, so you’d be in no danger of paying capital gains tax anyway. Why should it be a no-brainer to increase the limit for people with homes worth 2-3 times as much?
I didn’t say it affected me, its just an example of how much home prices have increased (outside of Califirnia even). The no brainer part is becasue of inflation, why should we be stuck at 1997 levels forever?
That depends, do I still need to live somewhere? If I do actually need to live somewhere, chances are that will have increased in price just as much as the house I’m “profiting” on.
Let’s pretend I’m moving across the street. I bought my house 30 years ago for $200k and am selling it now for a cool $1M. Oh boy, I have $800k of profit, $300k is taxable, so I pay $60k in taxes. Now I go and buy the house across the street which is also a cool $1M. Except, I’m $60k short.
That’s an awful lot of money to lose just to move across the street, or to another town. Seems like the smart move is to not move. Is incentivizing people to not move what our tax codes should do? Should the tax code screw over people who are forced to move for work or other personal reasons?
I thought there was some rule that covered that kind of situation by waiving the tax if the gains were invested in another home within a certain time window. Any real estate tax people around who can clarify?
The “profit” from your home sale would be reduced by the cost of any improvements you’ve made to the house over those 30 years as well as any expenses associated with selling the house such as brokers’ commissions, legal fees, etc.
That was the way the tax code read at one time. Which meant the tax really only mattered when somebody sold their primary home and intended not to buy another one. Such as when retiring, downsizing, and moving into a rental or an old-farts home.
Nowadays that roll-over option doesn’t exist. See here for example:
I’d appreciate that, my amateur level IRS search pulled up such a waiver for investment properties, but that specifically excluded your actual home, which gets the $250k/$500k waiver instead.