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 Richmans' Trade and Taxes Blog

Our capital gains commentary - House Prices in Free Fall - was published this morning by the American Thinker!
Howard Richman, 4/14/2011

Here is a selection:

In 1951, Congress, at the urging of President Truman, instituted the roll-over treatment for taxation of capital gains from home sales, an economically sound treatment of capital gains. As a result, from 1951 through 1997, whenever a homeowner sold his or her primary residence to buy another residence, the capital gains tax was deferred, not forgiven. In technical parlance the gain was rolled-over until the new home was sold. Homeowners would typically build up their equity in one home, sell that home, and then use their savings to make a down payment on a larger home. During that period, there were large changes in interest rates, yet real home prices were quite stable.

In 1997, a foolish Congress, at the urging of a foolish President Bill Clinton, eliminated the capital gain tax on homes sold by most homeowners. This change immediately stimulated the housing price bubble. It told speculators that the capital gain that they would earn would be tax free if they bought a house in the expectation of a rise in its market value and sold it at a higher price. Under the new provision, almost anyone who had lived in a house for 2 years of the past 5 years could sell the house free from capital gains tax. The new policy encouraged people to gamble on real estate. They saw that houses were going up in price year after year. What an easy way to make money!

To read it, go to: http://www.americanthinker.com/2011/04/house_prices_in_free_fall.html