NCPA - National Center for Policy Analysis

Tax Change Invigorated Second Home Market

October 13, 2000

Significant numbers of Americans are purchasing second homes. They may have been encouraged by a 1997 change in the tax laws.

  • The change permits most home-sellers to exclude up to $500,000 in capital gains on their homes from taxation.
  • So many families can now sell their homes and use the proceeds to buy both a smaller residence and a second vacation home -- a strategy particularly attractive to couples whose children have flown the nest.
  • Second-home sales hit 377,000 last year -- up 27.4 percent from 1995, according to figures from the National Association of Realtors.
  • The median price of vacation homes is up 49 percent since 1991.

Noting that the median age of second-home buyers last year was 43, the association expects the large number of people in their 40s and 50s entering the second-home market to add some 100,000 to 150,000 units to housing starts each year over the next decade.

Source: Gene Koretz, "Economic Trends: A Yen for Homes Away from Home," Business Week, October 16, 2000.


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