Low inventory in the marketplace has been a leading topic of discussion in the market for years now. A variety of factors working in conjunction with each other have created the environment we’ve been operating in. You hear certain points made regularly. Homeowners with a mortgage rate in the 2’s, 3’s and 4’s don’t want to give that up for today’s mortgage rates. Builders, burnt during the last housing recession, have demonstrated restraint in building at a slower pace than housing demand in the market place. Older homeowners retiring in place. Fear of being unable to find or afford the next home. These are just some of the multitude of reasons, but there is one that I haven’t noticed much discussion on. Limitations due to the Capital Gains Exclusion cap when selling a primary residence.
In 1997, the Capital Gains Exclusion was established at $250k for single filers and $500 for married joint filers. The tax code indexes some items for inflation. This was not one of them. The exclusion amount remains the same today, more than a quarter century later, as it was in 1997. Anyone who works in the real estate industry is aware of how much housing costs have increased over just the past few years, let alone since 1997.
A bipartisan More Homes On The Market Act was introduced by Representatives from California and Pennsylvania that seeks to double the current exclusion thresholds to $500k and $1.0M respectively. The National Association of Realtors supports this legislation. An upward adjustment in that amount would roughly bring the exclusion amounts in line with an adjustment for inflation since 1997 when the Capital Gains Exclusion policy was first established. This legislation also seeks to make the exclusion amounts indexed and adjusted for inflation annually as we move forward, to help avoid future scenarios we currently see where homeowners in some markets feel locked in place due to tax consequences that would stem from selling. There are housing markets in the United States where the median home price approaches, or even exceeds, a million dollars. The existing exclusion amounts are of limited functionality in the most expensive markets particularly, but the benefit of this proposed legislation would be realized by many homeowners across all markets who’ve been in their existing homes for many years. Passage of this legislation would be one tool for introducing some much-needed inventory back into marketplaces across the United States. This legislation is something I’ll be keeping a hopeful eye on going forward.
With this knowledge, now you can Rest Easy.