Question

If you a buy a house for $150,000, live in it for more than two years, and sell it for $350,000 you pay NO TAX on this $200,000 realized gain. By contrast, if you invest $150,000 in a stock and sell the stock for $350,00 after more than one year, you must pay long term capital gains taxes of 15% on the $200,000 realized net long term capital gain. Why is this different treatment, which favors real estate over stock investments, built into the tax code?

Answer 1

Fluctuations in the real estate prices are not much volatile as compared to the volatility in stocks. Investments in real estates , especially in a growing economy nation is never been a loss making investment, although profit is also not too high. There is less risk involved in real estate investments compared to stock investments. Stock prices are volatile and hence with high risks involved. But, higher the risk higher are the returns. Government of any nation would promote people to invest where the risk is quite low, to safeguard the assets of people. No tax will be attracted on selling the house with gain. There is also less possibiity that people will continuously change the house every 2 years and the situation to change would arise only in certain unavoidable conditions. Hence, tax has not been levied on gains through real estate dealings. Hence, there is tax imposed on gains from stock, where the government does not promote much trading in stocks which are risky.