There’s a new proposal before the U.S. House that gives older homeowners an incentive to sell. Introduced by Rep. Nicole Malliotakis of New York, the Nest Egg Protection Act would raise the capital gains exclusion for Americans aged 65 and over temporarily. For the next four years—from 2027 to 2030—homeowners who qualify may exclude up to $1 million in profits from taxation for property owned for at least 25 years, double the current limit applicable to married couples.
The numbers behind the bill say it all. The exclusion rate, which stands at $250,000 for individuals and $500,000 for joint taxpayers, was enacted back in 1997 and has never been adjusted to account for inflation since. Meanwhile, home prices have kept rising. What cost $129,000 two decades ago can be sold today for more than $400,000—a price tag that triggers a sizable tax liability for those who’ve owned their property that long. But in some pricey regions like New York and California, the differential is even higher, costing home sellers tens or even hundreds of thousands of dollars in taxes.
Why Frozen Homeowners Choke the Whole Market
But there’s another issue underlying the affordability problem that this proposal would address. Many older Canadians wish to downsize their property, yet fear being taxed heavily stops them from doing so – even though they’re sitting in homes well beyond their requirements. Why does this matter? Well, because they’re the types of mid-size homes located in mature neighborhoods that young couples want so desperately to purchase.
In other words, when the older generation is tied to their home, the available stock remains stagnant. Not only is Canada currently in dire need of millions more units, but first-time buyers also struggle to find affordable housing amid one of the most difficult periods ever recorded. By lightening their tax load, we can persuade a substantial number of the estimated 25+ million homeowners with capital gains to list, increasing inventory without ever having to build a single new home.
The Tradeoffs Lawmakers Will Have to Weigh
Critics may question this proposal and rightfully so. A temporary window of opportunity will result in a surge of activity followed by a drop when the holiday period ends in 2030. In addition, there is always the matter of equity—this provision is likely to help homeowners with properties in highly appreciating regions who have owned for decades rather than individuals selling a flat in a less competitive market. This proposal might face criticism for being nothing but a well-disguised giveaway.
The 25-year ownership provision makes sure that only those who qualify as long-term homeowners are able to benefit from this provision and prevents investors and relatively new owners from getting the credit.
Currently, the bill is still under consideration by a committee and has no co-sponsors, which shows how much work needs to be done. However, it becomes increasingly clear that this is far from being an isolated case of attempts at addressing issues related to capital gains on homes. Other bipartisan proposals, including one attracting as many as 120 co-sponsors, aim to address the same problem. Thus, it seems that capital gain reform in the area of real estate is slowly gaining traction in Congress.
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