Updated February 26 at 6:26pm

A taxing post-election question for owners

Could the popular $250,000-$500,000 tax-free exclusion of capital gains on sales of homes be a target in any broad-scale, post-election effort to reduce the federal debt and deficit? More

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A taxing post-election question for owners

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Could the popular $250,000-$500,000 tax-free exclusion of capital gains on sales of homes be a target in any broad-scale, post-election effort to reduce the federal debt and deficit?

Absolutely. Though far more public attention was given to the presidential candidates’ proposals for reining in the mortgage-interest deduction, the capital gains exclusion is one of a number of housing “preferences” – subsidies – embedded in the tax code that are on the table in fiscal negotiations beginning later this month on Capitol Hill and likely extending well into 2013.

Nonpartisan, corporate-backed groups such as Fix the Debt, which has nearly 100 CEOs of blue-chip companies such as GE, Dow Chemical, AT&T and Microsoft on its list of supporters, define the report of President Barack Obama’s deficit-reduction commission as the starting “framework” for their forthcoming national debt-reduction campaign. The deficit commission, headed by former Wyoming Republican Sen. Alan Simpson and Erskine Bowles, White House chief of staff for Bill Clinton, called for eliminating or restricting most current tax deductions as part of a plan to reduce the federal deficit by $4 trillion by 2020. The commission also envisioned deep cuts in federal spending and a reduction in corporate and personal income tax rates.

Though the commission carved out one possible exception for housing – converting the mortgage-interest deduction to a 15 percent tax credit – tax experts say that under the Simpson-Bowles version of fiscal reform, virtually all real estate write-offs, including the capital gains exclusion, would disappear in a vastly simplified federal tax code. The exclusion of home-sale profits, which is projected to save homeowners $86 billion between 2010 and 2014 according to congressional tax estimates, allows taxpayers who have owned and used their principal residences for two years out of the five years preceding a sale to escape capital gains taxation on as much as the first $250,000 (for single filers) and $500,000 (married joint filers) of the profits they make from the transactions.

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