The effect of capital gains taxation on home sales: evidence from the Taxpayer Relief Act of 1997
AbstractThe Taxpayer Relief Act of 1997 (TRA97) significantly changed the tax treatment of housing capital gains in the United States. Before 1997, homeowners were subject to capital gains taxation when they sold their houses unless they purchased replacement homes of equal or greater value. Since 1997, homeowners can exclude $500,000 of capital gains when they sell their houses. Such drastic changes provide a good opportunity to study the lock-in effect of capital gains taxation on home sales. Using ZIP-code level housing price indexes and sales on single-family houses data from 1982 to 2006 in 16 affluent towns within the Boston metropolitan area, this paper finds that TRA97 reversed the lock-in effect of capital gains taxes on houses with low and moderate capital gains. However, TRA97 may have generated an unintended lock-in effect on houses with capital gains over the maximum exclusion amount. In addition, this paper exploits legislative changes in capital gains tax rate to estimate the tax elasticity of home sales during the post-TRA97 period.
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Bibliographic InfoPaper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2008-53.
Date of creation: 2008
Date of revision:
Other versions of this item:
- Shan, Hui, 2011. "The effect of capital gains taxation on home sales: Evidence from the Taxpayer Relief Act of 1997," Journal of Public Economics, Elsevier, vol. 95(1), pages 177-188.
- Shan, Hui, 2011. "The effect of capital gains taxation on home sales: Evidence from the Taxpayer Relief Act of 1997," Journal of Public Economics, Elsevier, vol. 95(1-2), pages 177-188, February.
- H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
- R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
This paper has been announced in the following NEP Reports:
- NEP-ACC-2008-12-07 (Accounting & Auditing)
- NEP-ALL-2008-12-07 (All new papers)
- NEP-PBE-2008-12-07 (Public Economics)
- NEP-URE-2008-12-07 (Urban & Real Estate Economics)
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