John McGuire: Silent on Minnesota, dumb on housing

His proposal would benefit almost no one.

(Photo by Scott Olson/Getty Images)

I’ve heard from sevcral readers this week that McGuire’s office is refusing to even state a position on the violence in Minnesota. Standard answer: “I haven’t spoken to the Congressman about that.” Evidently they have more important things to talk about, like showerheads.

McGuire did find time to file a bill that’s supposed to increase the housing supply by giving older folks a tax incentive to sell to first-time home buyers. It will benefit almost no one.

Here’s why. Under McGuire’s proposal, if you’re over age 65 and sell property for less than $500,000 to a first-time buyer, you’d be exempt from all capital gains taxes on the sale, no matter how big your profit is.

But this overlaps a lot with current tax law. You can already exempt up to $250,000 of profit on the sale of your primary home if you file singly and $500,000 if you file jointly, as long as you’ve lived there at least two out of the past five years.

In other words, McGuire’s bill would create a new incentive for a tiny slice of the population: homeowners who are 65 or over, who are selling for under $500k, to a first-time buyer, but who don’t qualify for the primary residence exclusion (likely because they’re selling a vacation home or a rental property).

Over on Blue Sky, @tjsleakyroof skewered McGuire’s bill in a single sentence: “oh gosh yes truly one of the biggest obstacles to home ownership is the capital gains tax on selling your vacation home.”

Honestly, that tells you all you need to know. But if you want to dig into the data, do read on. Because McGuire’s proposal would increase the number of homes on the market by maybe 1 percent.

Crunching the numbers

To figure this out, I enlisted the help of ChatGPT. Here are the annual numbers just for Virginia, drawing from various real-estate sources:

1. Number of homes sold each year in Virginia: ~106,000

2. Number of those that are vacation/rental sales: 16,000 – 21,000

3. Number of those under $500K: 9,000 – 13,000

4. Number of those that are sold by people 65 and up: 3,100 – 6,200

As the Ronco guy used to say: But wait, there’s more!

Three thousand to six thousand is just the maximum eligible population.

We also have to subtract:

• Sellers who already owe no tax: Many of these owners bought decades ago or have gains small enough that they already fall under existing tax thresholds.

• Organic sellers: Most seniors sell because of life changes (downsizing, medical needs, or moving to assisted living). They would sell regardless of a tax break.

Research suggests only about 15 to 30 percent of eligible sellers actually change their behavior because of a tax incentive. When you apply those filters, this policy would likely result in only 900 to 1,000 “new” listings per year. That’s less than 1 of Virginia’s annual housing turnover.

The red tape factor

McGuire’s proposal requires the buyer to sign an affidavit, under penalty of perjury, that they’re purchasing for the first time.

If a seller has two offers—one from a move-up buyer with a clean 20 percent down payment and one from a first-time buyer requiring an affidavit—which one do you think they’ll pick? McGuire’s bill adds a layer of risk to a real estate closing that most sellers will simply avoid.

And then there’s the cost

The Congressional Budget Office hasn’t estimated the cost of McGuire’s proposal yet. But I asked ChatGPT to estimate the number of additional homes that would go on the market and the cost in lost tax revenues. It put the price tag at somewhere between $500 million and $2.5 billion a year to generate 30,000 to 60,000 home sales for the entire country.

I’m no economist and no housing expert, but I bet there are better ways to use a billion dollars to help people buy homes.

—Boot