Republicans propose eliminating profit tax on home sales. Will this make homes more or less expensive?

Photo above - Great news, Lisa! The government eliminated federal taxes on homes. Now we can buy that idyllic country farmette we've always dreamed of.

If you’re lucky enough to own a home, but decide you need to sell it, you could end up paying a capital gains tax up to 20%. The current rules are complex, and some sellers can escape the penalty, but others get hit hard. Representative Marjorie Taylor Greene (Georgia) has a plan to fix all that. Completely end the tax. (see link below)

Okay, this does have some caveats. It has to be your personal residence – no flippers allowed. And it can’t be some expensive vacation second home. Primary residences only. Presumably this change will benefit senior citizens who want to retire to Florida and become Burmese Python or gator wranglers in their golden years.

So far so good. I don’t want obnoxious home flippers like Tariq and Christina to reap a windfall by snaring some eyesore, repainting it, and putting down new sod. They made mega profits in 90-120 days on each California home they flipped this way. Average size about 1,600 SF. Sorry Tariq and Christina, you’re part of the problem.

In theory, letting retirees keep an extra 20% of their home’s sale price would make it easier to pack up and move to the sunbelt. They get more cash back after closing the sale, to help with things like Medicare premiums, electricity, eggs, and rising HOA fees/property insurance premiums.
Okay, so more homes be listed for sale. Increased supply. Prices might go down.

Or they might not. Hear me out.

If I’m some DINK (double income, no kids) millennial and the stock market is starting to look risky, I might buy a house – or a bigger house – to shelter myself from the 20% capital gains tax that would apply to any wall street investments I could have put my money in. This seems like a no brainer – 20% tax on my Apple or Amazon stock , or zero tax on my house. Can you decide which will end better? This is not a trick question.

So, money that MIGHT have gone into the US stock market (which is in a near-historic bubble, by any measure) could pivot and go into a bidding war for that 4 bedroom, 3.5 bath 3,000 SF home on half an acre. Those things go for 3 million in NY or California. About $500,000 in a normal state. But I’m guessing most of the DINK’s with big brokerage accounts live in New York or California, so those are the markets where people might continue to bid up home prices.

This post is NOT a condemnation of MTG or anyone else's plan to reduce the tax burden on retirees and middle-class earners. I'm trying to encourage a debate on how tax policy might actually affect us in the real world.

If there are any economic historians here, please remind us about what happened to stocks when the capital gains rates were reduced from 60% to 28% and then to today’s 20%. Did that make stocks go up, or go down? Could that happen with home prices, too?

I’m just askin’ . . .

MSN

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Avectoijesuismoi · 36-40

@SusanInFlorida In short fixed rate is more popular in US it is about 92 % of home owners that use that version. It's good and bad at the same time. Yes you are sure of what you're interest rate will be for the whole term of say 30 years, but the rate of interest is frequently higher usually 2 % maybe more than that of ARM.
Secondly you are stuck with that rate for the whole loan period. For instance if as example they have you a rate of 6.75 %, and the interest rate that is prevailing becomes say 3.5 %, you end up paying over the odds for your loan.
But if it interest goes above that rate you carry on paying your rate at 6.75 rather than say a prevailing rate of for example 8%.
So it can be a win or a lose situation for the borrower to have fixed rate. Fixed rate for 30 years is what the financial institutions like to push because it is a consistent win for them they sell it to the consumer as a safety sure thing concept. They are guaranteed your money at that rate for a long time.
Hidden in it is also usually clauses that often make it difficult to redeem the loan early for longer periods should you get lucky and have the funds to do it or the penalties are high for doing it. They also may have a clause that prohibits paying back more than you monthly amount to pay it back quicker should you get into a position to do so, new job with bigger salary etc.
In short they want you trapped
ARM with fixed period of 3,5 or 7 years are actually a better option as it gives you wiggle room and also if you are not planning to stay in the same property for 30 years which people rarely do when you are starting out.
ARM also gives ability to re-mortgage at better rate as well after the original fixed period.
It is why you should never use in house mortgage people at Bank or real estate use independent to do it they play everyone of the financial institutions against each other to get the best rate for their client.

SusanInFlorida · 31-35, F

@Avectoijesuismoi fixed rates are fixed. the ARM formula guarantees your payment will go up, unless a miracle happens. that's the "bait" they use to snare you with an ARM. Lower monthly payments up front, and they increase later on. ARMs usually also have a prepayment penalty, so you can't escape without giving them even more money.

Avectoijesuismoi · 36-40

@SusanInFlorida Whichever the system you use it always favours the lending Financial institutions, it is their business to make money
Fixed rate they have you paying X rate for 30 years
ARM they have you for X years paying at X rate and yes it can go up but it can go down as well, but it is risk factor and to an extent for both parties.
As a control Mechanism the Central bank hikes the rates and the banks then have to follow in line and hike what they charge the consumers for loans, but rarely do they give those with actual money in the bank anywhere near even a similar rate as returns on their money. Supposedly to curb inflation or control it.
The only problem is it is actually counter productive, as it can cause Foreclosures on homes, it can cause people to lose their businesses, jobs amongst other side effects side effects, the consumers have less money to spend and that impacts growth in your economy.
Does it cause property prices to drop maybe for a while, but that is when those with money go in and buy as assets for rental market etc, and most good real estate people have investors on their books to do just that.
The real problem though originates with the government mismanaging the country and getting it into debt where they borrow to cover the excess above what they receive in revenue with loans (TB ) in US case that get ever more expensive to payback. Eventually it gets to the point where either no one will lend you anymore or the country gets to what they call "Can't Pay, Won't Pay" scenario as the amount they owe has far exceeded what they can pay back. But usually before you get to that point the investors have said hey we ain't gonna lend you anymore now.