The Impact of the Taxpayer Relief Act of 1997 on Housing Turnover in the US Single Family Residential Market

Real Estate Economics, Forthcoming

Posted: 2 Oct 2013

See all articles by Gary Painter

Gary Painter

University of Southern California - Sol Price School of Public Policy

Andrea J. Heuson

University of Miami - Department of Finance

Date Written: June 7, 2013

Abstract

The Taxpayer Relief Act of 1997 (TRA97) replaced a one-time, post- age 55 capital gain exclusion with a larger gain exclusion amount that could be protected every two years without requiring that the taxpayer trade up in housing. This action had the potential to impact housing transactions for every existing homeowner, regardless of age, as well as future purchasers of housing. We analyze household-level data to determine if the repeated ability to exclude periodic recognized capital gains on housing from taxation shortened housing tenure significantly after TRA97 became effective. We next consider whether the decline was heterogeneous across age groups, across trading up and trading down, and across geography. Given that the impact of the Act appears at first glance to be most profound for taxpayers close to 55 years of age, a somewhat surprising result of our research is that significant decreases in tenure are pervasive, appearing in all age ranges and in samples of homeowners who trade up and who trade down. Finally, we provide additional evidence at the aggregate level that TRA97 led to measurable changes in the price elasticity of housing turnover in the four geographic regions defined by the U.S. Census Bureau (Northeast, Midwest, South and West) and in states that are home to large metropolitan housing markets.

Keywords: Tax Policy, Housing Turnover, Trading behavior

Suggested Citation

Painter, Gary and Heuson, Andrea J., The Impact of the Taxpayer Relief Act of 1997 on Housing Turnover in the US Single Family Residential Market (June 7, 2013). Real Estate Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2323900

Gary Painter (Contact Author)

University of Southern California - Sol Price School of Public Policy ( email )

Los Angeles, CA 90089-0626
United States
213-740-8754 (Phone)
213-740-0001 (Fax)

Andrea J. Heuson

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
305-284-4362 (Phone)
305-284-4800 (Fax)

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