Capital gains tax on certain home sales? Bill fails – for now


A bill that would make it harder for real estate speculators to rehabilitate and sell distressed properties has missed a key deadline in the California Legislature. Photos via ZINC Financial

Correction: A quote from Steve Flach, president of the Fresno Association of Realtors has been corrected to read that price appreciation has declined to 9.4%.

A bill that would have imposed a capital gains tax on property speculators missed a deadline on Friday, postponing for at least a year a bill that an expert says would hurt the very people trying to put houses on the market.

Assembly Bill 1771 would have added a 25% tax on gains made on homes sold within five years of the date of purchase. Drafted by Chris Ward (D-San Diego), the bill was intended to curb skyrocketing home values ​​by taxing speculators who try to profit from rising home values.

Data cited by the bill’s authors claim that purchases by investor-buyers drove sales growth of 51% from 2020 to 2021 in Southern California, compared to a national average of 18%.

Due to lagging inventory, homes have garnered a record number of offers, pushing home prices well above appraised values ​​- with sellers favoring cash offers in many circumstances.

But the bill would also have targeted people bringing derelict properties back to market. Todd Pigott, CEO of ZINC Financial, a struggling asset lender in Fresno, said it would hurt the very people struggling with the housing crisis.

Degraded properties cannot qualify for conventional loans until they are up to code. Pinball machines either have to pay cash for these homes or get special short-term financing. Most homes are bought, renovated and sold within a year, triggering the highest tax in the bill’s tiered system.

There are three types of homes that need work to qualify for conventional mortgages, Pigott said. The cost of repairs for the first type is less than 10% of the acquisition cost. These are houses that could use new carpet or new paint or a ground fault circuit breaker in the bathroom – the kind of job someone might be able to do in a matter of seconds. weekends. Most pinball machines avoid them because not only can the owners do the job, but the returns on investment aren’t enough to justify the loan terms or the labor invested in the property.

The second type of house needs repairs totaling between 10% and 30% of acquisition costs. These are houses that need new roofs or major work.

“These are major repairs,” Pigott said. Most homeowners don’t have the four hours a day to spend coordinating construction crews to get these homes up and running.

The third type of house includes everything beyond, including houses damaged by floods or fires or those that have been heavily vandalized. These houses attract squatters, and neighbors regularly call the city government about vagrants living in the houses.

“Name me a primary owner who has a full-time job and can find four hours a day to drive to a property in moderate distress that is between 10-30% of the cost of acquisition who has the knowledge -do, ability, hassle factor or time,” Pigott said.

A capital gains tax on top of federal and state income tax discourages repair work on these homes, Pigott said.

“You’ve discouraged the very people who can fix this problem and fix the blight,” Pigott said.

As for investors buying homes to sit on and resell for a profit, there have only been a few times in history when there have been double-digit returns on homes – now and just before the Great Recession.

Real estate experts say a thorough check on home loans is why they don’t fear a meltdown, but Pigott says the market will correct. Home yields have already started to stabilize.

In his presentation in the recent Fresno County Economic Development Corp. Real Estate Forecast Steve Flach, president of the Fresno Association of Realtors, said median price growth fell to 9.4% year-over-year in January, down from double-digit growth. seen regularly in Fresno County.

“We haven’t seen single-digit appreciation (comparing the same month to the year before) in two years,” Flach said.

In February, the number of listings increased by 565, a sign that inventories are increasing.

The bill did not come out of committee last Friday. So that means he remains dead for the 2022 legislative session.

“California is full of blight, full of homeless, full of trash, for God’s sake don’t penalize it,” Pigott said.

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