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Changing Capital Gains: Analysis
A recent report from the Congressional Research Service suggests that, “policymakers may wish to reconsider” the primary residence capital gains exclusion caps of $250,000 for individuals and $500,000 for joint-filers which have been in place and unchanged since 1997.
The report shows that IF the exclusion caps had been increased to reflect the change in the “average housing price” from 1998 to 2021, they would now be $650,000 for single homeowners and $1.3 million for married couples.
With that in mind, Analysts at the National Association of Realtors believe our current caps could be causing some homeowners to be reluctant to sell once they realize just how much of their proceeds would potentially be absorbed by gains tax, exacerbating our housing supply challenges.
The NAR, is expected to release a study soon, projecting that by raising the capital gains exclusion to $450,000 for single filers and $900,000 for joint filers, to adjust for inflation, the market would see an increase in supply of between 159,000 and 344,000 homes nationwide; Anywhere from 39% to 85% of the average number of new monthly listings nationally in 2022.
Waiting on congress
Armed with this data a new bipartisan bill was proposed in March by Representatives Jimmy Panetta (D-Calif.) and Mike Kelly (R-Penn.), The “More Homes on the Market Act,” seeks to double the current caps by increasing exclusion limits to $500,000 for single filers and $1 million for joint filers. Not exactly the numbers suggested by the Congressional Research Service Report, but a huge improvement to the existing standards
Now, I think everyone can agree that paying less in taxes is generally a good thing, but As far as increasing the number of listings…the impact of the legislation would likely only be realized in more expensive markets. And while that’s a move in the right direction for sure, I just don’t see don’t see there being much if any impact in the majority of markets. The typical sales price for a previously owned single-family home was $353,600 last year and competition for starter homes is still fierce.
Keep an eye out
But let us know your thoughts! Would the passing of this bill improve conditions in your market? Either way, keep any eye on it and start developing your marketing strategy for those legacy owners who might be more inclined to list, should it pass. The early bird always gets the worm so let’s get to work.
