How Capital Gains Change Would Work

President Clinton’s proposal to cut capital gains taxes on real estate would mean that virtually every American would no longer have to pay capital gains taxes on their primary residence. Clinton has proposed to give each individual a $250,000 tax exclusion for the sale of real estate. Married couples get to exclude $500,000. Under current law, those over the age of 55 get a one-time tax exclusion on up to $125,000 in profits.

SOME HYPOTHETICAL EXAMPLES

* John and Mary Gonzalez, age 75, sell their home they purchased for $30,000 in 1970 for $250,000. During the past 25 years, they have added a swimming pool and made about $20,000 in other permanent improvements. Under current law their taxable gain is $200,000. However, because they are both over the age of 55, they are able to exclude $125,000 of the profit from tax. They pay tax on the remainder: $75,000 at a 28% capital gains rate.

Net tax under current law: $21,000.

Net tax under the Clinton proposal: 0.

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* Wesley Simpson has a $500,000 home that he won in a poker game. He decides to sell to pay his other gambling debts. His net profit under current law: $500,000.

Net tax under current law: $140,000

Net tax under Clinton proposal: $70,000.

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* Jeff and Sue Yamamoto, both 45, are making $50,000 on the sale of their current home. They also have $200,000 in untaxed profits from the sale of other homes. They buy a $200,000 home in Arkansas, where Jeff’s been transfered. Under current law, they owe tax on $250,000, which is the lesser of the net profit or the amount not rolled into another residence.

Net tax under current law: $70,000

Cost under Clinton plan: 0.