IRS Homeseller Provision and Urban Decline

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This study concerns a federal income tax policy and its possible contribution to urban decline. The policy is IRS Code Section 1034, "Rollover of Gain on Sale of Principal Residence," which applies to capital gain realized through home ownership. The study involved an analysis of the movement of homesellers and geographic pattern of home values in the Cleveland metropolitan area, taking into account the applications of Section 1034. The study objectives were to (1) locate the actual moves made by sellers as they purchased their next home and (2) determine whether the capital gain provision was related to greater movement out and away from the city than otherwise might be expected. The question prompting the investigation was whether Section 1034 contributed to urban decline by encouraging city homesellers to move from the city and by obstructing suburban sellers from moving in. The study concludes that, in metropolitan areas where values increase in an outward direction, Section 1034 contributes to urban decline.

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