WASHINGTON -- Millions of American homeowners age 55 and older would be eligible for a major new health-care benefit if a plan being pushed by housing trade groups on Capitol Hill catches fire.
The new proposal would essentially take the current $125,000 capital gains exclusion for senior homeowners and raise it to a maximum $200,000 -- with the proviso that the additional $75,000 be used for retirement care.
One of the key goals of the plan: to help pay seniors' long-term care costs that now are often funded by Medicaid, by tapping the home equity wealth that they control in their early retirement years.
Under present federal law, homeowners 55 or more can pocket the first $125,000 of profits on a home sale, provided they've lived in the property for at least three of the prior five years.
This tax-free windfall is available only once in a taxpayer's lifetime, whether as a single individual or as a married couple filing jointly.
Since the seniors' capital gains concept first was added to the federal tax code -- a $20,000 ceiling in 1964 -- it has been raised periodically to compensate for inflation's effect on home values and the cost of living.
In 1976, the exclusion jumped to $35,000. Two years later, Congress raised it to $100,000. In 1981, it went to $125,000, where it remains.
If that figure were adjusted in 1996 for 15 years of inflation, using the federal consumer price index for urban areas, it would now exceed $212,000, according to industry estimates.
No serious efforts to raise the limit have been mounted by the largest trade lobbies that represent seniors or housing interests -- the American Association of Retired Persons (AARP) or the National Association of Realtors -- because other tax-related issues have taken precedence on their legislative agendas, especially since the Tax Reform Act of 1986.
But the American Seniors Housing Association -- a Washington-based trade group that represents owners and developers of retirement care communities -- is pushing a new concept that would tie any increase in the realty capital gains exclusion limit to homeowners' own later health care and living expenses. The effort is also backed by the National Apartment Association and the National Multi-Housing Council.
Here's how it would work. The $125,000 limit would remain in effect in its current form, with this exception: For those homeowners 55 or older who have additional gains beyond $125,000, as much as another $75,000 in equity could be shielded from federal capital gains taxes, provided that amount is used in one of three ways:
* Placed in trust for the sole purpose of providing long-term care.
* Used to gain admission to, or for residence in, a qualified continuing care retirement community, as currently defined in the federal tax code.
* Used to purchase long-term care insurance that conforms to the National Association of Insurance Commissioners' model long-term care insurance rules.
Pub Date: 4/14/96