The Community Home Lenders of America (CHLA) today unveiled a tax proposal to tap into trillions of dollars of assets locked up by capital gains tax consequences to help children or grandchildren buy their first home. CHLA released the plan after President Trump recently expressed support for changes to the tax treatment of sale of a personal residence.
Modeled after the commercial 1031 Starker Exchange concept, the CHLA proposal would exclude taxes on capital gains on the sale of up to $50,000 in stocks/bonds/mutual funds/publicly traded REITs – or taxable gains on the sale of a principal residence – when the sale proceeds are gifted to a child or grandchild and used by them within 6 months as a down payment on a first time home purchase.
“It makes no sense to have seniors with appreciated stock elect to hold the stock until they die to get the basis step-up and only then pass the assets along to their children and grandchildren,” CHLA said in their proposal release. “This proposal allows the same tax outcome NOW to help their children or grandchildren buy a home”.
Following are the key provisions in the CHLA proposal:
-
Exclusion of long-term capital gains on a sale of up to $50,000 in stocks/bonds/mutual funds/publicly traded REITs or taxable gains on the sale of a principal residence – when the sale proceeds are gifted to a child or grandchild and used by them within 6 months as a down payment on a first-time home purchase.
-
An eligible child or grandchild must be a “first-time homebuyer” – using the same definition that applies to a penalty waiver for an IRA withdrawal for a first-time home purchase.
-
The purchase price of the home cannot exceed the FHA single family loan limit in the area.
-
The capital gain that is excluded is subtracted from the basis of the first-time home purchase. This would create a new type of Starker (1031) Exchange, with tax deferral. The homebuyer would later pay a capital gains tax if the $250k/$500k principal residence exclusion is exceeded.
-
The $50,000 cap is a lifetime cap for each taxpayer. However, the exclusion may be taken for more than one child or grandchild, subject to the $50,000 cap.
-
Mutual fund capital gains distributions would not be eligible, as these are not voluntary sales.
“CHLA’s proposal extends the Starker concept from commercial real estate to first time home purchase – a targeted, tax-efficient way to gain access to trillions of dollars in investments to help the next generation(s) buy a home” CHLA said in releasing its proposal.