How I'd Change Real Estate
3/20/2024
The Tax Twist for New Homes
I know the feeling of driving past “For Sale” signs and thinking nah, unobtainable. It doesn’t feel good but, there can exist a world where that isn’t such a strong reality.
If capital gains raised for building a new home vanishes, it helps the main problem of RE. Supply.
Benefits
- Increase investment in RE.
Why would you do this?
Picture this: Capital gains escaping the government and introducing new homes instead. Property values will go down gradually with increased supply while prices will sustain in the short-term with the new benefit of avoiding cap gains. There’s a valid criticism that investors would just wash their money from capital gains this way but, if they’re forced to hold their money in these homes for at least 5 years or forfeit capial gain benefits, it’ll lead to long-term thinking rather than short.
Property Values with a Twist
New homes could become the hottest ticket in town, driving up their prices as investors chase the tax break. Yet, the five-year ownership rule throws a curveball: no quick flips allowed. Hold on tight, and you keep the benefits; sell early, and they’re gone. This could stabilize prices over time, turning real estate into less of a rollercoaster and more of a long-term play.
Tax Revenue and Investor Moves
The government might feel a short-term pinch as tax revenue dips from new home investments. But with forfeited benefits on early sales, it’s not a total loss. Investors, meanwhile, would shift gears—think fewer fast-buck flippers and more “set it and forget it” landlords. The result? A market that rewards patience over speculation.
Rentals and Mortgages Get a Lift
More new homes could mean more rentals, especially if owners hang on to snag those tax perks. Freshly built, high-quality options might flood the market, giving tenants a win. Lenders could see a surge in new construction loans, too, though they’ll be watching for oversupply risks.
The Bigger Picture
This isn’t just about bricks and mortar—it’s about balance. Wealthier players might dominate early, but the long-term focus could level the field a bit. Governments would need to keep an eye out, ensuring new builds don’t just pile up in ritzy zip codes while older areas languish.
The Bottom Line
This policy could be a triple threat: sparking construction, steadying the market, and upgrading housing stock. It’s not perfect—older homes and short-term revenue take a hit—but it’s a daring bet on the future of homeownership. Would you buy in?
What do you think—game-changer or risky gamble? Drop your take below!
What would be the consequences of making any capital spent on real estate a tax deduction and reversing any capital gains on such capital?
I would only intend to allow this on new constructions or homes built less than 1 year ago. Can you adjust some of your prediction consequences based on this? Additionally, I would only allow the capital benefits to only sustain if the home is owned for more than 5 years otherwise they will be forfeited on sale of the home. Please adjust based on this as well.
What would be the consequences of making any capital gains used on new real estate a tax deduction thus reversing any capital gains on such capital? I would only intend to allow this on new constructions or basically any homes built less than 1 year ago, this would include purchases on builds from builders. I would only allow the capital benefits to only sustain if the home is owned for more than 5 years unless it’s a primary residence by a family. Otherwise, capital gain advantages will be forfeited on sale of the home meaning the capital gains seen on the money used to build the home is now going to be taxable income again. To prevent only building for large investors, I would limit it to only living spaces of 5 bedroom and 4 bathrooms or a locally defined size maximum outside of multi-family builds and less than 3k sq ft but remember this would still include apartment buildings because their living spaces on average are typically much lower than this 5bed 4bath limit. This would also increase the title company burden for these types of transactions (they would be the ones sending the tax documents accordingly to the IRS as well as the individual). This tax deduction usage will have approvals that always favor single-families rather than builders so large developers will not get the benefits as much. This means families in general will be the primary benefactors / developers will only get the benefit of working for such families / projects. I would also require that these homes are actually used as a primary residence (for families) and by the builder (for multi-family). For multi-family I would make it so that they have to have at least a 80% non-vacancy rate after 6 months of construction for the rest of the 5 years or face clawbacks on the capital gains benefit. So that there isn’t a market crash from this, I would sunset this policy after 20 years for non-families and developers from working on these project as well. I would also only have hardship exemptions on clawbacks for primary residence of families and not multi-family buildings (job moves, medical emergencies) and there will be clear application and approval processes for this.