[Congressional Record Volume 143, Number 76 (Thursday, June 5, 1997)]
[Senate]
[Pages S5354-S5355]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GRAHAM:
  S. 840. A bill to amend the Internal Revenue Code of 1986 to provide 
an exemption from tax gain on sale of a principal residence; to the 
Committee on Finance.


           the principal residence tax exclusion act of 1997

  Mr. GRAHAM. Mr. President, today I introduce the Principal Residence 
Tax Exclusion Act of 1997. Earlier this year, Representatives Rob 
Portman and Ben Cardin introduced similar legislation, styled H.R. 
1391, in the House of Representatives. In addition, both President 
Clinton and former Senator Dole have expressed strong support for a 
capital gains exclusion for our Nation's homeowners.
  This is a proposal that enjoys widespread bipartisan support. Now is 
the time to make good on our promises to help our Nation's families.
  As everyone knows, moving is a stressful and complicated process. 
Besides worrying about whether to take advantage of a job opportunity 
in another State or to move closer to family members or to accept some 
other reason for relocation, such as a change of residence at 
retirement, people should not have added to all of those complex 
decisions the worry about paying taxes on the sale of their permanent 
residence.
  This act will get the tax code out of the family's decisionmaking 
process. It will allow the family to make decisions based on the 
family's specific circumstances, not based on constraints imposed by 
the tax law.
  What is the current law? Under the current law, capital gains from 
the sale of principal residences are subject to taxation. However, two 
provisions exclude many homeowners from the effect of that taxation.
  First, under the so-called rollover provision, taxpayers can roll 
over gains from the sale of a principal residence into a new residence 
and defer any capital gains tax under certain conditions. One of those 
is that the purchase price of the new residence must exceed the 
adjusted sales price of the previous principal residence. The new 
residence must be purchased within 2 years of the date of sale of the 
first home.
  There is a second provision which results in many homeowners not 
paying a capital gains tax on a principal residence. And that is the 
age 55 exclusion, a taxpayer is eligible for a one-time permanent 
exclusion of up to $125,000 on any accumulated gain from the sale of 
their principal residence. In addition to meeting the age 55 
requirement to qualify for this exclusion, the taxpayer must have owned 
the residence and used it as their principal residence for at least 3 
years during the 5 years prior to the sale.
  A taxpayer is eligible for the exclusion only if neither the taxpayer 
nor the taxpayer's spouse has previously benefited from this exclusion. 
Consequently, Mr. President, to avoid the tax, most people wait until 
they are eligible for the one-time exclusion or they make what may be 
uneconomic decisions regarding the sale of their home.
  Mr. President, this is not right. People should be able to move when 
they want to, not when the tax code makes it financially possible. They 
should be able to buy a smaller home, if that is what they desire, 
without having to pay a tax on the difference between their profit on 
the sale of the first home and the price of the new home.
  Mr. President, this is an issue of removing governmental intrusion 
from family matters. This is an issue of allowing Americans to be free 
from unnecessarily burdensome requirements. This is an issue of 
permitting people to make decisions that will ultimately have a 
positive impact on the American economy.
  The Principal Residence Tax Exclusion Act would go a long way toward 
resolving each of these issues. I hope that my colleagues will join me 
in supporting this proposal.
  Under this act, the Principal Residence Tax Exclusion Act, taxpayers 
of any age--I underscore ``any age''--could exclude the gain on the 
sale of a principal residence of up to $500,000 for a married couple 
filing a joint return, and up to $250,000 for a single taxpayer.
  To be eligible, the taxpayer must have owned and used the home as the 
principal residence for at least 2 of the last 5 years prior to the 
sale. The exclusion will generally be available once every 2 years.
  This legislation would have a far-reaching impact on the families of 
our Nation. Under the current law, approximately 150,000 families 
annually have taxable gain on the sale of their homes. This number 
would be even higher. However, concern about the tax causes most people 
to wait until they are eligible for the one-time exclusion or to buy 
increasingly more expensive homes over time regardless of whether such 
purchases are economically wise or otherwise meet the family's needs.
  Under the new proposal, the Department of the Treasury estimates that 
only about 10,000 transactions annually would be subject to taxation. 
So nearly all families would be relieved of the burdensome 
recordkeeping requirements and constraints on decisionmaking which are 
part of the current law.

[[Page S5355]]

  Mr. President, I would like to bring to your attention one such 
family, a family who I believe represents the concerns of many American 
families. Rudy and Lynn Saumell of Valrico, FL, retired and moved to 
Florida several years ago after working for a combined total of 60 
years in the Connecticut school system. Lynn taught remedial math in 
the elementary school for 25 years. Rudy taught for 15 years before 
serving as an assistant principal for 20 more years. The Saumells lived 
in their Connecticut home with their two daughters for 23 years. When 
the Saumells retired 5 years ago, their girls had long since left home; 
the family's needs had changed.
  Lynn and Rudy decided to move to Florida to be near some of their 
relatives and to enjoy the warm climate and a hospitable neighborhood. 
They no longer needed such a large home. They were moving to a lower 
cost area. But the Saumells were concerned about being taxed on the 
sale of their Connecticut home. So, upon their accountant's advice, 
they bought a more expensive home than they needed and used both the 
one-time exclusion and the rollover provision to avoid paying tax on 
their previous residence's sale.
  In order to qualify under current law, the Saumells had to keep 
extensive records of all of the improvements they made to their 
previous residence. For over two decades, they complied with the law to 
the best of their abilities despite the difficulties they encountered 
in doing so.
  I commend the Saumells for their diligence. I agree with them that 
these requirements seem unnecessarily burdensome and nearly impossible 
to fulfill without error, omission, or honest misunderstanding.
  The act I propose would eliminate the need to keep these detailed 
records for 99 percent-plus of all Americans. After spending 5 years in 
their new home, the Saumells still want to move to a smaller home in a 
retirement community. They are paying more than they would like in 
property taxes. Their heat, water, and electric bills would be greatly 
reduced. Instead, Rudy and Lynn would rather spend the money they have 
saved for traveling and helping their daughters buy homes for their new 
families. Lynn and Rudy do not need such a big home for just the two of 
them.
  But the Saumells are stuck between a rock and a hard place. Under the 
current law, if they keep their house they will not be able to spend 
their savings as they would like. But if they sell their home and buy a 
less expensive one, they cannot use the over-55 exemption again since 
it is only available once in a lifetime and the rollover provision 
would not apply since they are not moving to a more expensive home.
  Thus their savings would be eaten up by a large capital gains tax, 
defeating the purpose of selling their current residence. So they are 
locked in the dilemma: Do we stay in a home that is larger than we 
need, more expensive than we can afford, or do we sell the home and 
suffer a substantial capital gains tax?
  Mr. President, why should the Saumells have to base their housing 
decisions on the Tax Code rather than their family requirements? Why 
should they be prevented from spending their savings on what they deem 
to be important?
  Like many Americans who are affected by the capital gains tax on home 
sales, Rudy and Lynn have spent their entire lives working and saving 
for their retirement and to assist their daughters in starting their 
new families' lives. It is unfair to deny them the freedom to spend 
these savings as they wish. So I offer this legislation to allow the 
Saumells and all of our Nation's families more freedom in their 
decisionmaking, to be able to decide where to live based on their 
families' circumstances, not on the Tax Code.
  Rudy now volunteers with a local television station to help people 
recover money that has been wrongfully withheld from them. Isn't it 
time that we remove the Tax Code restraints on Rudy and help him get 
back the free use of his own money?
  Mr. President, we have the means, the opportunity, and the support to 
help our Nation's families in a very significant way. Passing this 
legislation is more than providing relief to our Nation's homeowners. 
It is the right thing to do.
  Mr. President, I ask unanimous consent that a letter from the ERC, 
the Employee Relocation Council, be printed in the Record.
  There being no objection, the letter was ordered to be printed in the 
Record, as follows:

                                           The Employee Relocation


                                                      Council,

                                     Washington, DC, June 4, 1997.
     Hon. Bob Graham,
     U.S. Senate, Washington, DC.
       Dear Senator Graham: The Employee Relocation Council 
     (``ERC'') strongly supports your efforts to introduce 
     legislation that would provide a $500,000 exclusion of gain 
     on the sale of a principal residence and we urge that this 
     proposal be included as part of the tax package to be 
     assembled by Congress in the coming weeks. Reducing the tax 
     cost of relocations and improving the economics of home 
     purchase decisions would be beneficial not only to individual 
     taxpayers, but to companies and the economy as well.
       Currently, taxpayers can rollover gains from their 
     principal residence into a new residence and defer any 
     capital gains tax to the extent that the purchase price is 
     equal to or greater than the adjusted sales price of the old 
     residence. Additionally, a one time $125,000 exclusion 
     ($62,500 for separated individuals) is provided at age 55. 
     These tax rules are extremely complex; encourage relocating 
     employees to purchase increasingly expensive homes regardless 
     of their economic situation and can prevent companies from 
     relocating those employees because of increased relocation 
     costs (attached is an analysis of the benefits to employers 
     and employees that would result from enactment of this 
     proposal).
       ERC is an association whose members are concerned with 
     employee transfers, the sale and purchase of real estate 
     related to the movement of household goods and other aspects 
     of relocation. ERC's members include some sixty percent (60%) 
     of Fortune 1000 corporations as well as real estate brokers, 
     appraisers, van lines, relocation management companies and 
     other industry professionals. ERC supports initiatives that 
     case the constraints and reduce the costs of moving employees 
     and that allow companies and individuals to relocate based on 
     sound economic decisions. ERC believes that one of the keys 
     to success in today's international marketplace is workforce 
     mobility, which enhances the ability of companies to compete 
     internationally and is reflected in improved national 
     productivity and efficiency. The complexity and costs imposed 
     by the current tax rules act as a detriment and forces 
     employers and employees to make decisions based on tax law 
     and not economic soundness. Accordingly, ERC endorses your 
     efforts to enact legislation that would provide for a 
     $500,000 exclusion of gain on the sale of a principal 
     residence.
           Sincerely,
     H. Cris Collie,
       Executive Vice President.
                                 ______