Frankly, I've never heard of this change and plan to ask my accountant about it. However, I do not believe great numbers of people are selling their homes every two years to take advantage of the change in the law. Maybe speculators but they tend to be a small group that takes advantage of every loophole in the law.
Internal Revenue Code Section 1034, which is the "law" you're referring to, has existed for years. In effect, you could always sell your residence and defer the gain so long as you purchased a more expensive residence within a prescribed period (which varied between 1-2 years over time). A different law provided for a one-time exclusion after you reached age 55 of up to 125K without purchasing a replacement. What changed is that there is no longer a requirement to reinvest the money in a residence, and the amount was increased to 500K vs. 125K previously -- in effect, accommodating the wealthy (Clinton? No that can't be possible -- he was the friend of the working man).
While there are many people who understand this provision and can and will take advantage of it, like you I doubt it is going to be abused to the point of creating a "bubble". "Bubbles" happen as part of the economic cycle.
What COULD contribute is the current interest rate, which makes home ownership extremely attractive, even at inflated prices. For example, near my home in the country developers have begun building 77 homes averaging about 1200 s/f on 15 acres (that's right, that's 5 to an acre) priced at 100K. In this area, 100K is a lot for any 3 BR house that isn't on a lake. And they're selling. Because people can buy one of these with little money down and end up paying LESS than they would if they were renting, there are buyers who otherwise would not be able to own a home. It remains to be seen what the long-term consequences of this will be. |
