As I have said many times Main Street USA needs a vibrant construction sector to create jobs. The problem is that many communities are left with incompleted housing projects, strip malls and office complexes. Declining home prices and now lower stocks have citizens on Main Street worried about what can come next. Banks both big and small have slowed home foreclosures, but maintain tight lending standards for those wanting to buy a home. Can anything be done to help stabilize the housing market?
Two Suggested Tax Law Changes That Would Help All Homeowners and Prospective Home Buyers
We should change the tax laws so that homeowners who sell their underwater home, or sell at a price below their original purchase price, can write off capital losses on their income taxes? I am amazed that we have a very generous way to handle capital gains from a home sale, but no consideration for loses.
Did you know that a married couple can sell a home and a profit of up to $500,000 is not taxed by Uncle Sam? The only contingent is that the home must have been your primary residency for two of the past five years. Guess what, you can do this over and over again with subsequent homes? There has to be at least three years between transactions and the home must be your primary residency for two of the past five years. Being able to take capital losses would stabilize home prices and provide an incentive to try to continue to stay in the home making monthly payments.
Another way to stabilize home prices and keep homeowners in their homes is to allow the owner to invest their own retirement money in the purchase or refinancing their home mortgage for their primary residency. The tax laws should be changed to allow for the payment of a home with funds from your retirement account such as an IRA. There should be no penalties for early withdrawal. The money withdrawal should not be taxed as ordinary income. The funds from an IRA would be used to help buy a home, or reduce an outstanding mortgage principle.
The bottom line is that homeowners and prospective home buyers need to know that they can help themselves with the help of a couple of tax law changes.
Bank Failure Friday Scorecard – The glut of unfinished real estate projects has caused the wave of bank failures that began in 2008; Only 25 banks failed in 2008. 140 banks failed in 2009 with a peak of 50 in the third quarter. 157 banks failed in 2010.
- 47 banks have failed year to date in 2011
- 369 banks have failed since the end of 2007
- I still predict 500 to 800 bank failures in total by the end of 2012 into 2013.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.