The Impact of the Taxpayer Relief Act of 1997 on Housing Turnover in the U.S. Single‐Family Residential Market

31 Pages Posted: 28 Nov 2014

See all articles by Andrea J. Heuson

Andrea J. Heuson

University of Miami - Department of Finance

Gary Painter

University of Southern California - Sol Price School of Public Policy

Date Written: Winter 2014

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 trades 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 TRA97 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.

Suggested Citation

Heuson, Andrea J. and Painter, Gary, The Impact of the Taxpayer Relief Act of 1997 on Housing Turnover in the U.S. Single‐Family Residential Market (Winter 2014). Real Estate Economics, Vol. 42, Issue 4, pp. 869-899, 2014, Available at SSRN: https://ssrn.com/abstract=2531512 or http://dx.doi.org/10.1111/1540-6229.12053

Andrea J. Heuson (Contact Author)

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)

Gary Painter

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)

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