Currently, the
capital gains exemption is $250,000 for singles and $500,000 for
married couples. There are two key issues here:
The exemption
amount was never indexed to inflation and therefore has not changed
since 1997 even though home prices are much higher today than 1997.
Therefore, in inflation adjusted dollars, the benefit is much less
than in 1997.
When a spouse
dies, the survivor has two years to sell the house or their capital
exemption will be cut in half, from $500,000 to $250,000. It is hard
enough to lose a spouse, but given that for many millions of
Americans, their home is their greatest financial asset, surviving
spouses who would rather stay in their homes, make the uncomfortable
financial decision to sell their homes that they really would like to
keep, so as not to lose $250,000 in tax exemptions and the tens of
thousands of tax dollars that they will likely need as they age to
live on.
Both these
issues need to be addressed. First raise the home tax exemption to
reflect inflation since 1997 and permanently index it to inflation.
Secondly, stop punishing surviving spouses by no longer reducing
their married couple home exemption when a spouse dies.
