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09/04/2007

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.

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