Housing, from Duncan Coker

December 16, 2011 |

 One particularly nasty feature regarding the housing market which I am surprised to have seen no writing on is the treatment of capital loss. Losses on primary residences can not be deducted from other capital gains. What you eat, so to speak, you must pay tax again on making that capital back. Using a 20% tax rate of say 6 trillion in lost housing capital, that is roughly $1.2 trillion that the public will have to pay in incremental tax. (true if housing rebounds the loss may not be realized or incurred. Also true that some of the capital loss may be transferred to the banks if owner walk on the loan) But thinking like a politician and using government finance should they not include this potential for windfall tax receipts over the next decade or so as new "revenue". And why not just bring it all forward to 2012 and solve the whole budget gap for next year.





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1 Comment so far

  1. Bill Herrmann on December 16, 2011 11:46 am

    Having recently endured the loss on a primary residence, I have done a little research on this subject. It seems IRS publications give several examples on the time required to turn a rental into a personal residence to avoid tax on a gain.(three years) …but doesn’t even consider that a taxpayer may wish to turn a personal residence into an investment property to take the loss on sale of real estate. Perhaps the IRS also didn’t think that real estate prices could ever decrease?


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