A question for homeowners about capitol gains.

From my understanding if you sell your primary res, where you have lived for 2 of the last 5 years, you can have up to $250k in gains ($500k if you are married) with cap gains taxes (but not if you have been renting to your business FYI). This means that you can live in your house you bought for $250k and sell it 3 years later for $500k and pay no taxes on the profit....for the most part.

This is one of the tax "loopholes" that the "middle class" gets. I know it is not assured, but removing such a loophole is alredy being discussed and may happen at some point in the future.

So if you have a house (that perhaps you bought for $150k) and today, even in this market it is worth more and you could sell it (say $200k), but you like living there and posting on 285bound.

Now if they are going to take away such a loophole, there will almost definitely be a warning, debate...a date at which it will start. Now if you got word say in May that come Jan 1 of 2013 that this cap gains exclusion was going away....what would you do.

Option 1 is to stay in your home, if you eventually sell, you will pay gains taxes on whatever your gains were (if you profit).

Option 2 is that you sell your home this year and get the benefit of the gains exclusion and reinvents the money in a new home, maybe even your neighbor's, having got the most out of the tax situation, but you are out of your home.

In my example, $150-200k. gaining $50k at say 30% tax is $15,000. This could be $75k of tax if you gained $250k and $150k if you and your wife score at $500k in gains. This is obviously more of an issue for folks that bought for $20k in the 70's.

I guess what I am trying to start is a discussion on what will happen the year they decide to stop this exemption. If you pick option 1 you loose out, but stay where you want...with option 2...there will be many people scrambling to sell that year, even neighbors working out double trades to get the exemption and end up back in their own home.

Same with the interest deduction. Take that away and people will want to pay down their debt faster, as this is currently a discount on mortgage interest. I know people may not be able to pay, but if they can they may.

Seems to me that it would be such chaos as people positioned themselved for such things that it would cascade through the economy.....thus could it never happen?

I know we all think a lot about people and the consequences of legislation and taxes. Any thoughts out there?

:pop

Sounds like another housing bubble in the making....

I would guess that it wouldn't be a flat out elimination of the loophole, it would be a phased out approach. the government is good at those - so they catch more people's necks when they tighten the knot.

Gunny wrote: Sounds like another housing bubble in the making....

Sounds more like another leg of the housing crash to me.

I wouldn't make a move based on current tax policy because it changes soon enough.

Congress loves to change things up, especially last minute.

FredHayek wrote: I wouldn't make a move based on current tax policy because it changes soon enough.

Congress loves to change things up, especially last minute.

This does not have to do with a personal situation, unless they actually do this. More of a pondering.

I guess I forgot about the concept of phasing things in...which could make a transition out of the current policy work. Thanks for that comment, I guess that is what I was looking for in posting to the braintrust.

the uber rich and corporate special interests and the military-industrial complex neocon red-tie cult members already have plenty of capitol gains.

Yup - 2012 is the last year of tax-free capital gains, so there's an incentive to sell off appreciated assets within the next few months.

You should not be paying capital gains on a house when it is mostly inflation causing the price increase.

You sell your primary residence at an inflated price and put the money back into another inflated residence, that was the idea for exempting the tax.

Of course most dopes spend the gain and Refi the new house 100% and then foreclose. Welcome to America.