Tax Guru – Ker$tetter Letter

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Possible Dem Tax Hikes?

Posted by taxguru on March 30, 2008


Subject:  Primary residence tax question

This morning I was speaking to a friend who is a local REALTOR.  She is suggesting that some people seem to be under the impression that if the Democrats win this election, this tax law could be changed or eliminated.  What is your impression or awares on this subject.


Thank you for your time,


If you’re referring to the Section 121 $250,000 tax free gain rule, I haven’t noticed any discussion of anyone suggesting repealing this.

The Dems are seriously discussing several other huge tax hikes, such as allowing the Bush tax cuts to expire in a few years, removing the special lower tax rates for long term capital gains, and no repeal of the Estate Tax.

As I posted in my blog recently, in California, the Dems are attempting to remove the deduction for home mortgage interest, which could be an indication of how DC Dems might move.  There’s always a chance that they could scale back the limit on how large deductible home mortgages could be from the current million dollar level.

It’s all speculation and conjecture at this point, but as much as I fear the Dems’ tax hiking urges, I’m not very worried about them removing the tax free home sale rule.  Luckily, it’s not part of the Bush temporary tax cuts, so it will live on until enough of our rulers in DC decide to attack it.

Worst case scenario that I could imagine would be for them to scale its savings opportunities back a bit, such as by making it a once in a lifetime deal, as the previous law was, instead of the current ability to use it every two years.

There’s also the possibility that they could reduce the amount of tax free gain from the $250,000 per person level.  However, since that amount was established in 1997 and has no provisions for any inflation adjustments, I don’t see that happening either.

That’s how I see it.  Thanks for writing.

Kerry Kerstetter



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