Fate of capital-gains exclusion unclear amid tax- code revisions

It’s often the biggest pot of gold available to any homeowner, yet its fate remains unclear under the main tax-code overhaul plans proposed so far on Capitol Hill.

The capital gains “exclusion” allows eligible owners to pocket up to $ 250,000 ( taxpayers filing singly) or up to $ 500,000 ( joint filers) from the net gains on their home sales, tax- free.

Along with mortgage interest and state and local tax deductions, it ranks among the major federal inducements encouraging Americans to own — not rent — a home. Between 2016 and 2020, unless changed by forthcoming legislation, the $250,000/$500,000 exclusion is expected to result in $ 166.3 billion in uncollected tax revenue for the federal government, according to the congressional Joint Committee on Taxation. That’s money that stays in owners’ pockets, rather than getting sent to the Treasury.

Both the House Republican “Blueprint” tax plan and the Trump administration’s summary of its forthcoming tax proposals would effectively limit the two other hefty benefits. But what about the $250,000/$500,000 taxfree exclusion? Curiously, both plans are silent on the subject.

One tax expert on Capitol Hill said that could mean it’s destined to be eliminated. Another said it was much more likely that the House tax writers will reach back three years to a “reform” plan proposed by Rep. Dave Camp, a Republican from Michigan. It would have:

■ Lengthened the minimum time that taxpayers need to own and use a house as their principal residence to qualify for the tax- free exclusion from two years to five years.

■ Limited the frequency with which owners can claim tax- free home- sale cash from once every two years to once every five years.

■ Limited the exclusion for higher income owners — those making $250,000 ( single filers) and $ 500,000 ( joint filers).

The Camp plan on the tax- free exclusion would have increased federal revenue by nearly $16 billion over a 10- year period — a seductive option for tax writers looking to save the government money.