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According to various sources there are approximately 7.5 million second homes owned in the United States representing approximately 5.5% of the total housing stock in 2018.
Many second home owners are holding onto their homes right now even tighter than in the past preferring to pass them onto their heirs (often as tax-free gains) as opposed to paying huge federal, and in many cases state, capital gains taxes if they were to sell them today.
Perhaps a solution to the housing shortage lies in a tax solution. Allow second home owners the opportunity to sell their second home using the same tax exemption they would receive on their primary residence providing they have owned it a minimum of 5 years. That would allow a single person to sell their second/vacation home and receive a $250,000 exemption from both federal and state capital gains. For a married couple the exemption would be $500,000.
This could significantly immediately increase the inventory of available homes and potentially put the brakes on rapid price appreciation and possibly even reduce prices in many markets.
Many retirees now own second homes that were formerly their primary homes. These homes are often larger and located in prime locations with high housing demand and little available land for new construction. These homes could be sold to families looking to move up to larger homes who cannot find anything. The result is that those families stay in their smaller homes and condos longer than usual which reduces the inventory for those looking for their first home.
The reverse is also true. Many second home owners own smaller homes and condos in prime locations that they may want to sell but do not want to incur a large capital gain when holding it will allow their heirs to inherit it on a stepped-up basis without having to paying a large capital gain on the appreciation.
In both cases homes in prime areas can quickly be made available to younger buyers looking either to move up or buy their first home.
Or....we could just remove barriers to more housing being built.....
Well you know we now have REITS and other companies buying up whole subdivisions of homes to rent out. Regular Ol' Joe cant compete against that kind of buying power. I'm not sure what the solution to that is...how do you not penalize say a landlord who owns two rental homes, but keep out the mega corporations that are basically distorting the market. And then there are the rich foreigners from China and Russia who also park their money here through real estate purchases. That seems to be the issue on the west coast.
According to various sources there are approximately 7.5 million second homes owned in the United States representing approximately 5.5% of the total housing stock in 2018.
Many second home owners are holding onto their homes right now even tighter than in the past preferring to pass them onto their heirs (often as tax-free gains) as opposed to paying huge federal, and in many cases state, capital gains taxes if they were to sell them today.
Perhaps a solution to the housing shortage lies in a tax solution. Allow second home owners the opportunity to sell their second home using the same tax exemption they would receive on their primary residence providing they have owned it a minimum of 5 years. That would allow a single person to sell their second/vacation home and receive a $250,000 exemption from both federal and state capital gains. For a married couple the exemption would be $500,000.
This could significantly immediately increase the inventory of available homes and potentially put the brakes on rapid price appreciation and possibly even reduce prices in many markets.
It seems to me this would have the unintended consequence of even more people and large firms investing in a second home to get the special tax treatment. Ie owning a second home would potentially come with better appreciation and tax treatment than other investment options. The tax subsidiary and increase in demand, would increase the cost of housing, and lock up even more housing as people hold to hit the time vesting for the tax treatment,
There’s a reason the current rules specify primary residence and intermediate term holding period.
Last edited by Thatsright19; 03-20-2022 at 09:00 PM..
Well you know we now have REITS and other companies buying up whole subdivisions of homes to rent out. Regular Ol' Joe cant compete against that kind of buying power. I'm not sure what the solution to that is...how do you not penalize say a landlord who owns two rental homes, but keep out the mega corporations that are basically distorting the market. And then there are the rich foreigners from China and Russia who also park their money here through real estate purchases. That seems to be the issue on the west coast.
So....have the REITs buy up whole subdivisions of homes to rent out in a limited market where bureaucratic red tape is holding up new housing?
Sounds counterproductive to the whole idea of making housing more affordable.
It seems to me this would have the unintended consequence of even more people and large firms investing in a second home to get the special tax treatment. Ie owning a second home would potentially come with better appreciation and tax treatment than other investment options. The tax subsidiary and increase in demand, would increase the cost of housing, and lock up even more housing as people hold to hit the time vesting for the tax treatment,
There’s a reason the current rules specify primary residence and intermediate term holding period.
Investment properties are already excluded from the primary home exemption. For someone to get around this exclusion in my proposed plan they would have buy the home and let the property sit for 5 years. It's doubtful this would be an attractive option for an investor, especially if financed, since they would be covering all the carrying costs out of pocket during that period.
More houses doesn't fix the too many people problem (the real issue).
The United States is a huge country. There are many areas, some with the infrastructure already in place, where people could live without overcrowding. The problem is that recent migration trends due to more favorable weather, as well as more attractive state economic policies regarding taxes, has led to millions of people abandoning many northern and midwestern states and moving south.
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