Though many industry groups, including the National Association of Realtors, reported last week that home sales are expected to remain strong in 2000 despite the recent run-up in interest rates, few observers acknowledged the seminal factor that contributed to this counterintuitive trend: the government's 1998 change in the capital gains tax framework for real estate.

As the Mortgage Bankers' Association of America's refi index and home purchase index continue to stay high despite these recent interest rate increases, real estate economists speak of economic growth and the wealth effect as possible reasons for a higher-than-expected level of housing turnover; but, more significantly than this, a change in the capital gains tax laws - particularly a 1997 enactment that stated that capital gains on a home are no longer taxable for the first $250,000 - has, by itself, given individuals an incentive to sell their home and buy a new one.

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