Joel and Kathryn Friedman, both 71, are counting the days until they can sell their home and move into a 55-plus community.
The retired empty-nesters have been ready to downsize for years, but are reluctant to sell their five-bedroom, 5,000-square-foot Southern California house [mansion] in large part because of at least $700,000 in capital gains taxes they estimate they’d have to pay.
Since 1997, home sale profits over $500,000 (for married couples) and $250,000 (for single filers) have been subject to a capital gains tax of up to 20%. That threshold hasn’t changed since 1997, meaning that — between inflation and soaring home prices pushing an ever higher number of houses above that limit — many more home sellers have to pay the tax now than when it was first implemented.
The Friedmans are among a growing number of older homeowners discouraged by the tax from selling their valuable properties. Housing economists say that dynamic has exacerbated a shortage of family-sized homes on the market, especially in expensive places like California.
The Friedmans’ house is too big for them, and maintenance costs are only rising, Joel said. “There are a million reasons why we’d like to move, but we’re not because the tax is just burdensome,” he said.
But that could change — there’s bipartisan support in Congress for raising the federal tax threshold to boost home sales in a stagnant market.
Either you shouldnt be paying any capital gains on a primary residence full stop or it should be on a sliding rate over time. (20% for first year -1% per year after)
Buying a house (even a mcmansion) and living in it for 30 years isnt a hustle or an investment strategy… its just living.
That’s… actually an interesting way to slow down flippers.
Plenty of folks are relying on the sale of their homes to pay for retirement, this couple in question is even an example of that. The big issue there is that it requires home prices to just climb and climb because they have to outpace each other(a sale of a home for this purpose will also need to buy the next home). The value of the home goes up with inflation but it also gets an additional increase because now it’s expected to help pay for 15-30 years of retirement, and the cheaper houses see the price range vacuum and seek to fill it not only because of greed but also because its sale will probably be used to buy the bigger, now even more expensive home. It’s shelter and we treat it like a luxury good.
Every time the price is referenced it’s used as excuse to raise prices elsewhere. It’s a feedback loop of greed fueled by the lack of a safety net and a lack of protections for both homeowners and renters. In Canada and the US things are extra bad because the demand in good cities is high but a lot of the existing housing, and even the new stuff, is production homes in “neighbourhoods” that are isolated, car-centric deserts and it’s still expensive.