Monday, August 08, 2005

Overinvesting

MSN Money - Extra: A housing boom built on folly
What accounts for the housing boom? Economists have cited a number of fundamental factors, including low interest rates, favorable demographics, and restrictions on development. But the unappreciated force that may have infected a strong housing market with home-buying mania is bad tax policy. Specifically, I mean the Taxpayer Relief Act of 1997, signed by President Clinton.

Under a set of easily met limitations -- mainly that a home has been a primary residence for two out of the past five years -- a family can exempt the first $500,000 in profit on the sale of the home from capital-gains taxes. The comparable figure for a single filer is $250,000.
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