"Penalty", yeah because people have put in sooo much hard work to make their house values go up. (Sure, some people will spend money on renovations, and there could be tax credits for that. But I don't think that sitting on an asset and letting it appreciate should be a free lunch.)
"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.
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".
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.
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.
