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The Taxpayer Relief Act of 1997 and Homeownership: Is Smaller Now Better?

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  • Amelia M. Biehl

    () (Department of Economics, University of Southern Indiana)

  • William Hoyt

    (Martin School of Public Policy and Administration and Department of Economics, University of Kentucky)

Abstract

Prior to 1997, homeowners under 55 were allowed to defer capital gains taxes from a home sale if they bought another house at least as expensive, while those over 55 received a capital gains exclusion regardless of the cost of their new home. The Taxpayer Relief Act of 1997 (TRA97) eliminated this differential tax treatment. We exploit the differential treatment before 1997 to uncover TRA97’s effects. Comparing homeowners under 55 before and after 1997, we find that those who moved after 1997 are twice as likely as to list “seeking less expensive housing” as a reason for moving, 8 percent less likely to own their residences and 9 percent less likely to live in a single family home.

Suggested Citation

  • Amelia M. Biehl & William Hoyt, 2009. "The Taxpayer Relief Act of 1997 and Homeownership: Is Smaller Now Better?," Working Papers 2009-04, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
  • Handle: RePEc:ifr:wpaper:2009-04
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    References listed on IDEAS

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    1. Cunningham, Christopher R. & Engelhardt, Gary V., 2008. "Housing capital-gains taxation and homeowner mobility: Evidence from the Taxpayer Relief Act of 1997," Journal of Urban Economics, Elsevier, vol. 63(3), pages 803-815, May.
    2. Hoyt, William H & Rosenthal, Stuart S, 1990. "Capital Gains Taxation and the Demand for Owner-Occupied Housing," The Review of Economics and Statistics, MIT Press, vol. 72(1), pages 45-54, February.
    3. 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.
    4. Lundborg, Per & Skedinger, Per, 1998. "Capital gains taxation and residential mobility in Sweden," Journal of Public Economics, Elsevier, vol. 67(3), pages 399-419, March.
    5. Hoyt, William H. & Rosenthal, Stuart S., 1992. "Owner-occupied housing, capital gains, and the Tax Reform Act of 1986," Journal of Urban Economics, Elsevier, vol. 32(2), pages 119-139, September.
    6. Rosen, Harvey S., 1979. "Housing decisions and the U.S. income tax : An econometric analysis," Journal of Public Economics, Elsevier, vol. 11(1), pages 1-23, February.
    7. Lang, Mark H. & Shackelford, Douglas A., 2000. "Capitalization of capital gains taxes: evidence from stock price reactions to the 1997 rate reduction," Journal of Public Economics, Elsevier, vol. 76(1), pages 69-85, April.
    8. Douglas A. Shackelford, 2000. "Stock Market Reaction to Capital Gains Tax Changes: Empirical Evidence from the 1997 and 1998 Tax Acts," NBER Chapters,in: Tax Policy and the Economy, Volume 14, pages 67-92 National Bureau of Economic Research, Inc.
    9. Todd Sinai, 1997. "Taxation, User Cost, and Household Mobility Decisions," Zell/Lurie Center Working Papers 303, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
    10. Sandra J. Newman & James D. Reschovsky, 1987. "Federal policy and the mobility of older homeowners," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 6(3), pages 402-416.
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    Cited by:

    1. 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.

    More about this item

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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