Editor's note: Either Congress had a change or heart of the real estate agents have good lobbyists. Both the House and Senate versions of the tax bill would have encouraged people to live in their houses longer, but compromise version threw out the change all together. If the tax bill becomes law, this tax break for homeowners will stay the same as it was before.

Here is the original story:


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A viewer emailed 9NEWS asking how a proposed change in the Republican tax plan would affect Colorado’s housing market.

“My friend, who is a real estate broker, is telling me that there are changes current tax bill that impact capital gains... that could basically kill the home buying/selling market,” Galyn wrote in an email. "Can you check this out?"

So we set out to examine what kind of impact the Tax Cut and Jobs Act would have on home prices in Colorado.


The change to capital gains Galyn mentioned in his email can be found in both the House and Senate versions of tax reform.

It extends the number of years people have to live in their houses from two to five if they want to avoid paying capital gains taxes. And it limits use of the tax-free exclusion to once every five years. It’s currently every two years.

Here’s how the change would work:

The median home price in Denver has grown from $350,000 in November 2015 to $430,000 for November 2017, according to numbers from the Colorado Association of Realtors. That means someone selling a house they bought two years ago could make, on average, $80,000 in profit if he or she closes before the end of the year.

(The cap on tax exempt profits is currently $250,000 for an individual and $500,000 for a couple.)

Under the Republican proposals, however, that person would have live in his or her home three more years or give about 15 percent of the profits -- $12,000 using the median prices -- to Uncle Sam.

That’s the predicament Denver residents Sam and Rebecca Sunshine-DeWitt are facing now.

“We took our realtor’s advice to find a house that would work well for us for the short term, so that we could build the equity to be able to afford a house that could be a longer-term home,” Rebecca Sunshine-DeWitt said.

The plan was to live in their current two-bedroom row house for two years and use that equity to buy a more family-friendly home.

They’re not sure whether that would still make financial sense under the proposed tax changes, since they’d have to take about a $16,000 tax hit if the Republican plan becomes law.

“Figuring out how to afford a family is expensive and stressful enough as it is,” Rebecca Sunshine-DeWitt said. “Adding in this complication that is unnecessary, it just compounds that stress.”

They’re not alone, Denver area realtor Kyle Malnati said. Americans who are 36 years old or younger live in their homes for two to four years on average.

“The ability for you to take that equity and move into a new house enables you to move up,” Malnati said. “And if that equity is eroded by taxes, you have less purchasing power. It’s a problem.”

Malnati majored in finance and has spent more than a dozen years working in the Colorado real estate market, so equity and capital gains taxes are things he thinks about daily.

9NEWS asked him what he thinks the Republican tax plan would do to the housing market.

His major concern was for the average Denver area homebuyer who might not know about the rule change until they get slapped with a five-figure tax bill.

As for the market in general, he speculated the law could shrink Denver’s housing market even further as people stay in their homes – especially starter homes – longer.

That could drive prices up, but other parts of the tax plan could bring home prices down.

The National Association of Realtors estimated that other changes in the tax plans around mortgage interest and local tax deductions could drive down Colorado home prices by as much as 11 percent.

Malnati couldn’t say whether the two would balance each other out.

“The big thing that I look at is the erosion of equity,” Malnati said. “Your purchasing power is diminished on the next home.”

Supporters of the Republican tax plan point to tax cuts elsewhere in the bills – like the doubling of the standard deduction -- that could balance out a capital gains hit over time.

One final caveat is that lawmakers haven’t finished combining the two bills into one final version yet, which means everything we’ve written about is still subject to change.

For example, the Senate plan doesn’t touch the partial carve outs that currently exist for people who move for a job or because they’re in the military.

But for Sam and Rebecca Sunshine-DeWitt those details wouldn’t change their tax bill.

“Financially, it’s a huge burden for us,” Sam Sunshine-DeWitt said. “This is what we staked our future on, was being able to sell this after two years and move into a larger home to raise our family. That was the whole point of buying this house in the first place.”