[lisper]

"Penalty" because someone who sells their house and buys a new one every time it appreciates $250k pays zero tax whereas someone who buys and holds pays significant tax despite having the same net gain over the same time period.

[dice]

There's a two year minimum that you must hold the home to qualify for the exclusion. So it's not "every time" it appreciates, but it is "once every two years".

https://www.irs.gov/publications/p523/ar02.html#en_US_2015_p...

[SapphireSun]

Seems simple to apply the tax rate pro-rata rather than on a cliff. Then the rule works more fairly and gaming is somewhat limited. Government seems to love rule cliffs for some reason.

[ethbro]

Artifact of a pre-digital tax/legal system?

[lisper]

Sure, but that's just another manifestation of the same problem: someone who sells after 23 months and 29 days pays tax. Someone who sells three days later doesn't.

[guelo]

If someone actually tried to execute that sell and buy strategy the large transaction costs would eat up any possible tax savings.

[bufordsharkley]

Could one make the case that the liquidity this adds to the housing market justifies the tax savings?

[kspaans]

OK, fair point. I think you're right, it should be all or nothing.