Plan to Cut Home-Sale Tax Meets Skepticism

In California, where home prices have soared over the decades, many homeowners were happy to hear President Clinton last week officially propose to cut capital gains taxes on home sales.

However, the proposal, if adopted into law, will result in significant tax savings for a minority of primarily older homeowners.

In fact, a few owners of high-priced real estate may end up paying more taxes than under current laws.

“I don’t think you will get more excitement out of it,” said Woodland Hills real estate broker Temmy Walker.

Many agents and their clients also remain skeptical about whether Clinton’s proposal, which he first mentioned last year and proposed in last week’s State of the Union address, will survive months of budget negotiations with Congress.

“We certainly have had many false alarms in the past,” Ventura real estate manager Nancy Amorteguy said of previous, failed attempts to cut capital gains taxes on home sales. The current capital gains tax tops out at a maximum of 28%.

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Under the most recent proposal, a person who sells his or her home can make a profit of up to $250,000 and avoid paying capital gains taxes. A couple can shelter up to $500,000 in profit. The current proposal would apply retroactively to all home sales after Jan. 1, but homeowners can sell their homes this year under the old laws if they like.

However, the Clinton proposal means little to the majority of home sellers who take advantage of existing shelters and deferrals to avoid paying taxes on any profits.

For example, homeowners can shelter their profits by selling their homes and then buying new property of equal or greater value within two years.

Homeowners older than 55 can also use a one-time, $125,000 tax shelter that does not require them to buy a house of equal or greater value.

The biggest beneficiaries under Clinton’s proposal would be an older couple who have seen their house’s value balloon over the years and are now ready to buy a less expensive home or rent an apartment, said tax specialist Phil Holthouse.

“Under current law, there are lots of people who trade down [to a less expensive home], and a lot of times it’s punitive for those people,” he said.

Newport Beach real estate agent Donald Pfaff said the proposal will spur many of his older clients to finally put their homes on the market.

“There are a lot of older people living in big homes that they don’t want to live in anymore,” said Pfaff.

“This will be a great situation for them,” he said.

But homeowners lucky enough to be able to sell their homes for a profit of more than $500,000 had better watch out.

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Under the Clinton plan, a homeowner who makes more than $500,000 on a home sale will get hit with capital gains taxes even if he or she buys a home of equal or greater value.

“It’s terrible,” said Beverly Hills real estate broker Jeff Hyland. “This is going to have a devastating effect on [high-priced] homes sales, and most people don’t even know about it yet.”

Of course, the Southern California real estate bust has left many homeowners with little if any profits to shelter, said Joe Babajian of Fred Sands Estates in Beverly Hills.

“The prices have dropped so much in the 1990s that there are not as many people sitting with that much equity in their houses as there used to be,” Babajian said.

Times staff writer Jesus Sanchez can be reached via e-mail at jesussanchez@latimes.com or by fax at (213) 237-7837.

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Who’s to Gain

Clinton’s fiscal 1998 budget proposal includes a cut in capital gains taxes on home sales, an idea he put forth at the Democratic National Convention last summer.

Under Clinton’s plan ...

* A couple will avoid paying taxes on up to $500,000 in profits from a home sale

* A single home seller will avoid taxes on $250,000 in profits

* The tax benefit can be applied to a home sale every two years

* Home sellers this year can sell their homes under the old or new regulations.

However ...

* A home seller who ends up with a profit of more than $500,000 might pay more taxes than under current regulations.