I propose the government give all homeowners the option of taking a tax credit of 10% of the purchase price of their primary residence each year for up to ten years. That puts money into taxpayers' pockets now, and provides added incentive for people not only to work harder to stay in their home, but gives potential new home buyers a little more motivation to get into the market.
This would not necessarily be a tax cut, but rather a tax deferral. Each year that a taxpayer chooses to write down the value of his house by 10%, it reduces the cost basis of the house. When the house is later sold, the government would collect a larger amount in capital gains. For example, if the house is sold after ten years, the entire amount of the sale would be taxed at the capital gains rate.
I think this would result in the following:
- Distressed homeowners could use the money they receive from the tax credit to get caught up on their mortgages.
- More people would be inclined to buy their first home in order to receive the tax credit. This would reduce the inventory of homes for sale and help to stabilize prices.
- Homeowners would be less likely to sell their homes as a greater percentage of the sales price would be taxable. This would also reduce the inventory of homes for sale, and would drive up prices.
I'm sure there are many kinks to be worked out of this system. What do you think? Any ideas for making this plan better?