California Could Surely Use This

If you own stock and sell it for less than you paid for it, you can apply your loss against any capital gains you might have, up to $3,000 a year. But if you sell your home for less than you paid for it, you have to swallow your loss; the tax code doesn’t provide for an offset against capital gains. For most people, a home is their biggest investment. As a matter of fairness, a capital loss on the sale of that investment ought to be treated the same as a loss on securities.

A provision in the tax-cut package that recently passed the House would provide equitable treatment to homeowners. Losses on sales could be applied against capital gains or taken as an income tax deduction. It’s a sound idea. What has to be determined now is how it can be made to fit overall budget and tax policy.

One estimate puts the potential loss to the Treasury at $28.7 billion over six years. That’s not a staggering sum in terms of total federal revenues, but a Congress bent on cutting and eventually erasing the deficit must treat it seriously. In all probability there would be some revenue gains from the provision, since it would almost certainly encourage home sales and the related economic activity.

California and especially Southern California would particularly benefit. Here would be an inducement to homeowners who bought high to accept the lower prices that market conditions now dictate. Some significant details remain to be worked out, of course, including how the potential tax break should be capped. But the general idea is sensible, fair and needed.