Changing Capital Gains Taxes

April 1, 1997

When it's right, it's right. And 1997 may be the right time to get long-awaited changes in tax legislation.

For the first time in many years, the president and the Congress are thinking along parallel lines, not only about bringing the national budget under control but also about stimulating the economy by stimulating real estate. There are two capital gains tax relief proposals of great interest to real estate: one concerns rollover of capital gains taxes on residences; the other is on investment properties.

The rollover provision in the president's proposal would benefit everybody. The proposal would provide sellers a $500,000 exclusion ($250,000 for single taxpayers) for each sale of a home that has been a principal residence for at least two of the last five years. This is a significant expansion of the present one-time capital gains exclusion of $125,000 that applies only to those over 55. Also, for the first time, sellers would have the option to trade up or down without worrying about the tax consequences. (Under present law, sellers may avoid capital gains on their sales proceeds as long as they reinvest in a home of the same or greater value.)

Another opportunity for capital gains tax relief in 1997 may be found in investment property. It may be possible this year to achieve the lowest capital gains tax rate for investors since 1986. A bill that would benefit commercial real estate investors and homeowners, has been offered by Sen. Orrin Hatch from my home state of Utah. The Hatch bill, S. 66, would reinstate a 50 percent exclusion for capital gains income and would reduce the individual capital gains tax rate from its current maximum level of 28 percent to no more than 19.8 percent. This could motivate many people to get back into investing in real estate.

A third proposal, offered by the president and introduced in the Senate and House, could further assist first-time homebuyers. That is the penalty-free withdrawal from individual retirement accounts (IRAs) to allow first-time buyers to use a portion of their retirement savings for a downpayment.

Your national association strongly supports these proposals and is working hard to get a more favorable capital gains tax treatment for sales of all real estate.

Russell K. Booth was 1997 president of the National Association of REALTORS®.

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