Personal Finance and Investing

Say a couple bought a house 25 years ago for $80,000 that is now worth $250,000. They now need to move because of a job change. They sell the house for $250,000 and, say after $20,000 in selling costs have a capital gain of $250,000 - 20,000 - 80,000 = $150,000. If there was no exclusion, then at a 15% capital gains tax rate they'd face a tax bill of $22,500.

Hardly fair at all if the equivalent new home in their new location also costs $250,000. They are simply trying to live in an equivalent house.

What the Republican in the OP doesn't understand is that when Joe Blow earns, say $50,000, he pays income taxes on that $50,000.

Likewise when Joe Blow and just about anybody else buys almost any asset (stocks, collectibles, gold, an apartment complex, a business, a vacation home, whatever) for $X and sells it for $X + $50,000 (after selling costs), he pays taxes on the $50,000 gain. Most of us consider that fair (albeit they pay taxes at a lower capital gains rate). Why should the worker who gets up at 5:30 in the morning to earn a paycheck and gets home at 6 PM be the only one paying taxes?

Congress reasonably decided to exclude something we all need -- shelter to live in -- up to $250,000 individual / $500,000 MFJ, so that people simply trying to buy an equivalent house don't end up paying huge tax bills along the way when they move. As well as downsizers.