Tax-Free Home Sales Could Be Vulnerable

The deficit reduction panel, which released its findings last week and hasn’t gotten much Congressional support, is still likely to provide a guiding light as Congress looks for ways to save money and raise taxes.

One target could be tax-free home sales at least the few transactions in which profits exceed $500,000 (or $250,000 for singles). The panel would tax these people at 15 percent, or maybe even 20 percent.

The National Association of Home Builders is much more concerned about the commission’s recommendation that the exclusion for capital gains in general be eliminated. That could cost taxpayers 28 percent on the sale of all kinds of investments.

“Eliminating the gain exclusion would drive down housing demand, hurt housing prices, and reduce the after-tax wealth of home owners, particularly older home owners whose equity in their home they planned to use as part of their retirement,” says Robert Dietz, an economist with the NAHB.

Source: The Wall Street Journal, S. Mitra Kalita (12/03/2010)