Under current tax reform proposals making their way through Congress, one of the rule changes has the potential to change the way American homeowners behave.
Currently, up to $500,000 in capital gains from a home sale are tax exempt as long as the seller owns and occupies the residence for two of the five years before the sale. But under Congressional tax-reform proposals, taxpayers would have to own and occupy their homes more than twice as long – five of the past eight years – before they can qualify for the tax incentive.
That means first-time buyers looking at starter homes would have to consider "starting" to last a minimum of five years. Millennial families and first-time buyers would be hurt the most from this rule change, since these groups trade up more frequently than older, more established homeowners.
More than half of home sellers age 18 to 34 have owned their homes for five years or less, according to a 2017 survey by the National Association of Realtors® – and more than one in four sold their house within three years of buying it.
"This change will discourage homeowners from selling their homes in an already tight-inventory market," according to a letter from a number of large real estate brokers, including Coldwell Banker, Long & Foster and Berkshire Hathaway. They sent to letter to lawmakers Nov. 14. The Senate Finance Committee is expected to finish work on its plan this week.