Political Campaign Yields Capital Idea for Homeowners

The Republican and Democratic presidential campaigns can tiff over who first thought of eliminating capital gains taxes on most home sales, but what’s important about this proposal isn’t its authorship but its likely results. From every perspective the idea looks to be sound and beneficial, good for homeowners and prospective homeowners and good for the economy. Its embrace by both Bob Dole, the GOP presidential candidate, and President Clinton goes a long way toward assuring its enactment by the next Con- gress.

Current law lets homeowners over the age of 55 take a one-time tax exclusion of up to $125,000 from the gain on the sale of their primary residence. For all homeowners, regardless of age, profits on a sale can be deferred from taxes if they are reinvested in another home of equal or greater value within two years.

The proposed change would provide a much more generous exemption. Homeowners filing joint returns could exempt up to $500,000 in profits from the sale of a principal residence, while single taxpayers could exclude up to $250,000. The exclusion would apply regardless of age, and the requirement that sale profits must be reinvested within two years would disappear.

For most American families, home ownership represents their largest investment. The equity they have in a home can be borrowed against, but until a home is sold it can’t be fully put to work. The proposed change in the real estate capital gains tax would be an incentive to free up that equity. Those who have held off selling their homes for fear of the tax consequences would be offered relief. Retirees especially who might want to move to less expensive housing would in nearly all cases be able to pocket their gains rather than pay taxes on them, no small consideration in an era when too few people have enough savings to see them comfortably through retirement. In some areas housing prices might even come down as sellers, their tax concerns eased, accepted smaller gains.

The Treasury figures the proposed change would cost a very modest $1.4 billion over six years. In any case, the Clinton administration says it would offer spending cuts to offset that decline in revenue. Here, so far as can be seen, is a no-lose idea, one that should benefit families, open up new investment possibilities to stimulate the economy and boost the real estate market. Occasionally, political campaigns actually give rise to estimable ideas. This, we think, is one of them.