Present Real Estate Problems Ignited By Taxpayer Relief Act
Economists in
increasing numbers have cited an unappreciated force that may have
infected a strong housing market with home-buying mania. They say
it’s the bad tax policy—the Taxpayer Relief Act of 1997—signed by
President Clinton.
According to
Mark Zandi, chief economist at economic-consulting firm
Economy.com,
the tax law change created fervor over the economic incentive to
buy, flip, and buy again every two years. (A family can exempt the
first $500,000 in profit on the sale of the home from capital-gains
taxes, for a single filer it’s $250,000.)
The lure of
tax-free profit has been a powerful incentive as it’s the kind of
math everyone can figure out. But we definitely over-invested in
housing as a nation, and sub-prime loans fueled the mania.
“Residential
investment accounted for 35% of private investment in the year 2005,
a level not seen since the early 1970s,” reflects Martin Barnes, the
perceptive financial-market observer at Bank Credit Analyst.
What’s ahead
for the most politically successful segment in society— homeowners,
builders and realtors? William Ahearn of the Washington (DC)-based
Tax Foundation, says the home-mortgage deduction is sacrosanct on
Capital Hill, but the capital-gains law is different. “It’s only
eight-years-old, and action ought to be taken before this bit of
policy becomes as enmeshed as the tax break for mortgage interest.”
Editor’s note: The foregoing information was condensed from
an article titled, “A Housing Boom Built On Folly,” from MortgagePro
News.
