in canada, we have no tax on sale of your "principal residence"
if your home is the minimum you need and will need, the house isn't an investment, b/c increases in your house price also result in increases to other houses
can only benefit from rising house prices if
move to location with lower real estate prices
downsize
it just so happens, that for a typical family, it is natural to downsize when retiring, because they needed and had a larger home for when they had kids living with them
the "empty nest egg" period between kids-leaving and downsizing is when there is a real investment
BUT, this can also be seen as a market inefficiency / perverse-incentive
ie. do we want a market where people are incentivized to keep larger homes than they need?
or, wealthy individuals to buy much larger/fancier homes than they need
a harberger-tax or some other land-value tax would pressure homeowners to downsize sooner
IMO, more efficient use of real-estate
a non-exemption on taxes for "principal residence" (say, a 100% VAT tax) would lead to situations where sellers are priced out of the market
ie. after selling home they were in for 20 years, they couldn't afford an equivalent
hence the motivation for the "principal residence" exemption
instead of a "100% principal residence exemption", could have a "fixed amount principal residence exemption" pegged to inflation
ex. 500k/person
ex. 2 spouses: 500k x 2
could include children?
ie. the first 500k of primary residence sale is untaxed, but remaining is taxed at typical capital gains rate
basically saying that "500k of housing per person" (inflation pegged) is "needs based", and anything above is choice / luxury
ie. 2 people in an 8M house
when sell, get (1M/8M = 12.5%) reduction on cap gains
ie. 2 people in a 2M house
when sell, get 1M/2M = 50% reduction on cap gains
ie. 2 people in a 1M house
when sell, get 100% reduction on cap gains
this is philospically similar to the "personal amount" fixed deduction in Canadian taxes
the political "difficulty" would be in picking a "fair" amount
too high, and it might as well just stay as a "100% exemption"
too low, and it "punishes" people in cities
ex. 500k/person in 2023 in Canada
1000sqft 2 bedroom in downtown Toronto
more than enough for 2 people
could be closer to 400k/person
also... "luxury" home owners (over the cap) would need to start tracking upkeep expenses
2023-03-04 Update
Could instead have a "per-year-accumulating real-estate cap gains exemption"
ex. $25,000 / year (5% of 500k)
ie. no more "principal residence exemption", this covers all real-estate cap gains
avoids the tax-dodge of: rent out a place for 20 years, then move in for the final year to make it your principal residence
does it start accumulating from birth? 18+? when you own?