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Horizontaland Vertical Inequities in the Capital Gains Taxation of Owner-Occupied Housing

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Listed:
  • J. Sa-Aadu

    (University of Iowa)

  • James D. Shilling

    (University of Wisconsin)

  • C.F. Sirmans

    (University of Connecticut)

Abstract

This article examines the capital gains tax inequities of owner-occupied housing caused by below-market financing techniques. Several recent studies have shown that the capitalized financing premium associated with below-market financing arrangements tends to show that the homeowner purchased a more expensive home than he or she actually did. For homeowners who would otherwise downsize to lower-valued houses (and thus be liable for capital gains taxes), the higher reported purchase price lowers the taxable gain in the year of sale and creates potential horizontal and vertical inequities in the taxation of capital gains of owner-occupied. The evidence suggests that the aggregate capital gains tax savings from assumption financing techniques is likely to be around $60 million per year.

Suggested Citation

  • J. Sa-Aadu & James D. Shilling & C.F. Sirmans, 1991. "Horizontaland Vertical Inequities in the Capital Gains Taxation of Owner-Occupied Housing," Public Finance Review, , vol. 19(4), pages 477-485, October.
    • Handle: RePEc:sae:pubfin:v:19:y:1991:i:4:p:477-485
    DOI: 10.1177/109114219101900408
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    References listed on IDEAS

    as
    1. Sandra Newman & James Reschovsky, 1987. "An Evaluation of the One‐Time Capital Gains Exclusion for Older Homeowners," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 15(1), pages 704-724, March.
    2. Sirmans, G. Stacy & Smith, Stanley D. & Sirmans, C. F., 1983. "Assumption Financing and Selling Price of Single-Family Homes," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 18(3), pages 307-317, September.
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