"Recent analysis from Moody's Analytics, led by Chief Economist Mark Zandi and Deputy Chief Economist Cristian deRitis, points directly to outdated capital gains tax caps as the culprit that is keeping millions of homes off the market and out of reach for families who need them most. According to the report, the problem starts with too many empty-nest seniors "locked in" to homes that no longer fit their needs. But instead of selling and downsizing to a smaller home, the prospect of steep capital gains taxes keeps them in their bigger homes."
"This lock-in effect, which is separate from the one caused by high mortgage rates, stems from the Taxpayer Relief Act of 1997, which introduced a capital gains exclusion of $250,000 for single filers and $500,000 for married couples. But these thresholds haven't budged in almost 30 years. If indexed to home price growth, today's exclusions would be $885,000 for individuals and $1.77 million for couples. Instead, the thresholds remain static, and more homeowners face massive taxes for moving, especially in states like California and Florida."
Outdated capital gains tax caps are locking many homeowners into homes that no longer match their needs, reducing available housing supply. Empty-nest seniors in high-cost metros often face six-figure tax bills if they sell, discouraging downsizing and creating misallocation in the market. Nearly six million older Americans reside in houses far larger than necessary while growing families and young households face overcrowding or remain renters. The Taxpayer Relief Act of 1997 set exclusions at $250,000 for singles and $500,000 for couples, thresholds that have not been indexed to rising home prices. Indexing those exclusions to price growth would substantially raise the exemption levels and reduce the move-tax barrier.
Read at Fortune
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