This boomer couple would be hit with $700,000 tax bill if they sold their mansion
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.
https://www.businessinsider.com/boomer-couple-sell-home-housing-prices-capital-gains-tax-2025-7Open linkView original on lemmy.world
In other words, their house would sell for at least 3.5 million. Where exactly is the problem?
3.5 million is the increase in value over what they paid. That means they were making well over $100,000 every year for the past three decades, and they are complaining about paying cap gains.
Fucking Boomers.
Although increasing the exemption amount to peg inflation does make sense.
Also, fucking Business Insider for running this obvious tripe.
Not surprising from an outlet created by DoubleClick founders and a guy who is barred from exchanges due to securities fraud.
Also capital gains on a primary residence should decrease somewhat over time.
These arent property speculators or people buying and parking empty homes. They are people who bought a house, lived in the community, probably raised a family and didnt move for 30 years and now want to downsize.
Ironically a property speculator could dodge this tax by buying a replacement property thanks to like-kind exemptions offered to investors but not private homeowners...
And will make a 3.5 million dollar profit from that transaction.
And?
If they have to pay taxes on that profit as if this was a business venture or investment they should be allowed to deduct 30 years of maintenance costs and loan interest as business expenses.
Uh... How is one's house appreciating in value equivalent to making money? It's impossible to access most of that money because, you know, they need somewhere to live, and according to the article the difference is supposed to pay for their retirement and healthcare. I have no idea how the math will turn out but 1-2 million for two 71 year-olds looking to live for 15-ish years in Southern California isn't outrageous at all. The fact it seems outrageous is purely due to how completely fucked up everything has become for the working class over the past few decades.
Which is why nobody here has any sympathy for their situation. They're doing better than the vast majority of the population. At least they have 3.5 million dollars coming to them.
*3.5 minus however much they'll need to get another home, move, etc, but more importantly: I'm not asking for anyone to sympathize with them, but the hate in these comments is both woefully misguided and completely unnecessary. Let's leave dragging each other down to the crabs.
You’re right, it’s not the same as regular income. Which is why a) we don’t tax the gains at the same rate as income and b) the tax is only assessed when the sale occurs.
And it’s not 1-2 million, it’s approx 4 million (4.8 minus tax) to go along with their social security income (according to the article) and presumably other retirement income
They don't want to contribute to society, even at a lower rate than wagies.
This is exactly the problem.
Couple are set to make $3.5 million in profit, are asked to pay tax, say no and greedily hoard their asset some more and cry about the hardship.
Fuck off.
They should be asking themselves why they haven't done more to give back to the society that gave them so much, but instead they're whining about a meager 20% tax on staggering profits. Instead of lowering capital gains, it should be raised, over a certain threshold. Hell, we should be taxing the wealth they just have sitting around so that we can show wealthy people like these two shameful selfish pricks what it feels like to really contribute.
Ohh no they have to pay taxes? Was this written by a toddler?
I swear to go, people are so disgustingly greedy i have little hope without a thorough revolution.
I mean,
Add in buying a new house and moving costs and it makes sense why they'd be hesitant. Retirement and housing are expensive.
Selling their house for $4,500,000 and paying $750,000 in taxes still leaves them with $3,750,000 for an over-55s, healthcare, and investing.
I think the multi-millionaires will be fine.
Okay disclaimer: I believe having to pay any kind of tax on your primary residence is messed up, so I'm more than a little biased here.
As far as I've been able to find on Google, retirement in California runs up to about 1 million a decade. With a generous estimate of 20 years remaining for both of them, you're looking at 1.75 mil for buying a home, moving, assorted emergencies, end of life care, inheritance before you factor in anything they might actually want to do with their remaining lifetimes. That's... not really a lot. I mean hell, the median home in San Francisco is 1.5 mil. It's certainly possible to cut costs here and there to make it work (particularly by choosing a house on the cheaper side) without having a below-average retirement, but at this point we're talking about retired people wanting a good location and quality of life and maybe some financial freedom for their retirement, not evil rich people hoarding money. What I'm trying to say here is that working class people (indeed, everyone) should be allowed to want this stuff, and not denied it because the government would rather take their money than tax the filthy rich. I'm speculating here, but I doubt any of this is radically different from what would be considered normal, maybe on the better side, 50 years ago. Capitalism has managed to convince people that they're not entitled to this stuff, but they are. You, me, the couple in the article, we're all entitled to a good retirement with financial freedom; just because not all of us get to have it doesn't change that fact.
This assumes the people who had the means to obtain a 5,000 square foot house in Southern California, which was still a costly prospect even 30-40 years ago have absolutely no means of retirement planning aside from their home.
Given their social status they are far more likely to have well funded 401ks and given their age they are even likely to have access to pensions (edit: they def do!), a pipe dream for the millennial and younger.
They can pay their fucking taxes. Maybe shop at Neiman Marcus less, buy a few less Lacoste shirts and tighten your purse strings like the rest of us. I probably won’t ever retire and I certainly won’t ever fund the building of a house worth 1.8million in 1990 dollars
In fairness, buying into those retirement communities aint cheap either. They know that people looking to move into them are usually selling an older and much larger home and can afford to pay a premium.
And they won't pay that unless it's a second home and they don't buy and take in capital gains.
they have a pension and nearly $3M in cash coming in from the sale (after tax)
if they have money issues at 71 with that situation, boohoo
If 3 million are not enough i very much doubt the 750.000 would make a difference.
That's the difference of $26,250 per year to spend without risking digging into the principle.
How so? Assuming a total of a million and a half for buying a house, moving and whatever else they need to do before actually moving in, that's about 2 mil for two retired people looking to live 15-20 years in California (subtracted 1 mil from 4.5 mil). The difference 2 mil and 3 mil or even 2.5 mil represents a massive change in quality of life, financial freedom, etc. Note that a moderate standard of living as a retired couple in California costs about 1 mil/decade*, so the extra money means they can have something for emergencies, to leave as inheritance or whatever else someone might want to do with money. I certainly wouldn't gamble on having to live the last years of my life stony broke.
*This is likely going to get even higher with Trump et al ruining everything.
So you are saying they will be able to buy a new house, move and then have some left over from the money they got due to selling their old home? Well how are they paying for everything right now
At the end of the day i doubt that we have the same views about fairness at all. I am happy for them that the piece of land that they bought ages ago is now worth a lot. There are however many more losers than winners with this development, so maybe forgive us for not feeling sorry for the winners having to share some.
It’s almost like housing shouldn’t be a retirement plan.
Business Insider so basically yes. I've never seen a "news outlet" blow business people as hard as them so I guess the name fits.
Problem is, many people do not see the lunacy and think taxes are stealing while it is at the moment the only way to take at least a share from the wealthy and give it to the poor.
But people hate the poor and needs. "Those lazy fucks deserve what they got" seems to be the spirit of the people i have talked to.
Let’s say I want to sell my (cheaper) home and buy another one — the same type of house, but I want to move. Well, I can’t, because as soon as I sell it and get taxed, I can’t afford to buy a house anymore. These aren’t landlords. We’re talking primary home residence.
For the people downvoting me: as average home prices increase in value you will eventually be unable to sell your home and move anywhere else. We went from $200k average home prices to $500k in just a few years. Ordinarily you would sell your current house and buy another one, but with this tax you can’t afford to do so. You’re locked in forever. Welcome to a shitty housing market.
That's not how this works. Not how any of this works at all. God damnit people need to keep their traps locked shut.
If you keep a profit from the sale, you get a tax on the profit at the end of the year.
Even if you use the proceeds to immediately buy another house, you still have to pay the tax, unless you are a landlord then you get a tax break, because we must protect those landlords but not private homeowners...
So you may be at a 15% or so disadvantage looking for a new place to live if you wanted to sell your property and move.
No you don't get taxed at sale and even if you did booo fucking hoo. If you're sitting on 500k+ in gains after downsizing then eat it and pay the tax. I'll play a sad violin story for the top 2% in the richest nation in the world.
I can't move because of these taxes 🙄 fuck off with that circle jerk
As a private homeowner you want to trade your $500k house to move near an adult child after your spouse dies. With the housing markets being equal, you end up owing a ton of capital gains tax but having to spend more just to try to keep even.
Or, as the tax code seems to want to encourage, the private homeowner becomes a landlord because that at least might let them keep pace with a new mortgage they have to take on.
It's crazy that we give tax advantage to landlords and deny them to people actually using their houses.
The “profit” is realized as soon as the sale goes through. Your financial illiteracy and the confidence with which you wield it is astonishing.
The first 250k (500k for a couple) of profit from your primary residence (if lived in at least 2 years) is excluded from taxation.
To explain in a nicer way where your error in thinking is:
You don't pay the taxes specified in the article on the whole amount of money you get for selling your house, only on the increased value compared to when you bought it.
So as example: you buy the house for 1 million and sell it later for 2 million. Then the tax in the article is only applied to the 1 million difference, so you only give away part of the money that you got in addition to the value you bought the house for. So you always end up with more money than you paid for the house, just not the full value.
Right but the rest of the housing market has also moved on. The cost basis of that house won't come anywhere near buying equivalent housing in the present
Let's say you bought a decent house back in the day for 100k, and now that house can go for 500k because it's a typical family home and all those homes are now 500k.
Let's say your spouse dies and you could stand for a different house, maybe closer to a family member that can help take care of things. You can sell your house for 500k, but you are left with only 420k that you keep. Sure you could easily afford 100k homes if they still existed, but now homes cost as much as you sold yours for.
The real kicker is there is a like-kind exemption that would negate this, but it's not allowed for your actual primary residence, only as an investment property. Landlords are protected from this but residential homeowners are not.
I don’t have an error. If you buy a house for $200k (average price for houses in the US some years ago) and it now costs $500k (average price for houses in US today), this tax makes it LITERALLY impossible for you to sell your house and buy another one. This is a new phenomenon.
That part is normal?
For real estate there is always a loss involved. Because multiple people and their work are involved and the state also wants their taxes of course. What you want seems to be 'government not involved' market of real estate and I'm not really a fan of unregulated markets. They tend to fuck us normal persons even more.
The discussion for this article is about downsizing the house and that is definitely possible, even after paying that tax.
You think it’s normal to lock the US population into place, decrease housing market liquidity, reduce inventory, and drive up home prices?
Here’s what I think is normal: the primary residence, which is traditionally the primary stock of wealth for the working and middle classes, should not be taxed. Period. Your second house should be taxed. Your third house should be taxed. Your huge boat should be taxed. Not your home.
People need to stop their war on the US middle class, which is rapidly disappearing. The majority of the wealth is in the hands of the top 1-10%. Not the middle 50, or the working poor, who are the most impacted by this moronic tax.
Behold, the impact of property taxes:
700k is 20% of 3.5 million
That leaves 2.8 million
If put into savings with a 4% annual interest rate, that is 112k per year
And they are complaining?
You fucking kidding me?
2.8 million dollars is more than most people have the ability to save for retirement in the first place.
They want us to cry for them because their payout from a single asset after tax is more than the average middle class retirement account?
Get fucking real, if anything this makes me think the capital gains tax is too low for their bracket.
Agreed... this couple isn't hurting either way.
However as they said the limit hasn't changed in almost 20 years. For most older people in America their home is the single most valuable possession and what many have to sell when they are unable to care for themselves and have to go into some kind of care facility. For people living in a HCOL area, their home can easily be many times more valuable than their savings and their primary or only asset of significant value, and a $1M house is a starter home.
It makes sense for the limits to be increased, but the couple that's the subject of this article doesn't deserve anyone getting teary-eyed.
Yeah that exemption always seemed pretty high, but as a newly single person (where the exemption is cut in half) in a high cost of living state where home prices have been rising excessively, and I’ve owned my home long enough to raise kids (and increase value a lot) ….. yeah it’s easier to see the other side. I’m ok but far from wealthy, and need to downsize in order to afford retiring, but would also be hit by capital gains.
Given what home prices have been doing and this exemption never changing, it’s no longer realistic. Now it’s not just the wealthy
I'm all for increasing the limit and also increasing the tax rate. Costs have gone up, period, but that doesn't mean rich schmucks shouldn't still be paying more
The first $500k is taxed at a lower rate, so they're actually making more than that on the sale.
Also at their age they could live on that money until they die. I hope an earthquake takes out the home making it worthless. Fucking greedy bastards. They are Fucking 71.
at my age i can live on that money until i die and i'm much younger.
Make $3,500,000 in profit and you get upset that you have to pay taxes on your 3.5x return on "investment."
If you can't cover <$1M in taxes from the sale of your $4.5M home maybe you should live within your means or get a roommate to help cover the bills like a normal person or something.
There's an alternative out, and one I think most people would object more to from a fairness perspective.
Selling their house means they lose out on a ton of the value, so don't sell, rent it out and have the current tax code coddle you because the tax code heavily favors being a landlord rather than selling the house.
It's busted that we actively encourage people to lock property up as investment because using a house you own is more expensive than not using a house you own.
They are soooooo poor 😭 😭 😭 i can't contain my sadness over this unjust tax 😭 😭 😭 Their house is worth 🤑4,5 million dollars🤑, and they don't want to 😡subsidize the state😡, that would be 👿evil socialism👿 ‼️ ‼️ ‼️
damn, i wish i had that problem.
Oh jesus fucking christ.... sell the damn thing. They'll still walk away with $2.8 million in their pockets that they can't currently spend. They're just being stupid greedy fucks who can't bear the idea that it could become even more valuable if they wait longer.
Nearer $3M as the first $500k is deductible, but mind those closing costs.
Probably bought it in 1946 for like $3k.
I pay zero taxes if I were to sell my house. Because I don't own a house, I can't afford one. I'm forced to rent.
My boomer parents constantly complain their pension is shit. They have to watch their spendings, they tell me. They live in a big house, surrounded by water and nature (in the Netherlands, so expensive AF), with a sailing boat AND an expensive motorboat in front of their house, an SUV and caravan, they completely remodeled their garden including expensive fences, they go on holiday about 5 times a year, they got solar panels and heat pump installed, got a new kitchen, bathroom and toilet, expensive automated sun screens for all their windows (all around the house). But they are treated like shit with their poor pension. My dad bought his first house when he finished his studies, my mom never had to work anymore as my dad made more than enough to support a household of 5, we always lived in middle class neighborhoods, we went to private schools. But they complain they have to buy fuel to come visit me, so they rather have me visit them instead. I live in social housing and struggle every month paying my bills. They never gave me a penny as soon as I left the house as I'm a major disappointment, even though I'm financially and mentally struggling (autism, ADHD, PTSD). They even changed their will because I'm such a disappointment so I will get the bare minimum and my perfect younger brother gets almost everything even though he makes loads of money every month.
I don't give a fuck. I don't want anything from them when they die. I'm not complaining about not getting anything. I'm just complaining their love for me is measured in success and that they are privileged fucks who constantly complain about their sad rich lives while many others are actually struggling and they don't give a fuck about them. They are an example of what's wrong with society. I broke off all contact with them. Fucking boomers. They even turned full right wing racists even though their parents and grandparents fought in the resistance during the second world war and got deported and tortured to death by the nazis in concentration camps.
I guess all the boomer parents are like that. I have a really good relationship with my parents, but they wouldn't help me out when my boyfriend and I bought a flat. Went as far as telling me that I'm trying to rob them, because maybe I can't afford the flat and then the bank will take their houses. I told them the bank just can't do that and they didn't believe me until they went to talk to a lawyer. And best part is, now they always say I'm not thankful because I will inherit their houses and they build them for me? And their parents were really poor small scale farmers, still they saved up to help them with their first home. As you can tell I'm still bitter about that.
I know some proper boomer parents but they are rare AF.
My parents paid everything for my perfect brother when he went studying. He had a luxurious life as a student.
I failed in school, because I was special (autistic later turned out) but should have acted like nothing was wrong. So I didn't get a penny when I couldn't eat for a week because I was completely broke. Instead they told me. To get my shit together, act like an adult for once and take responsibility for my actions.
So far they never acknowledged they ever made a single mistake, they project all their mistakes and failures into me or others, they complain constantly like spoiled entitled teenagers and they do nothing but judge people who are less fortunate.
I'm 38 now, they still tell me I'm behaving like a child even though I always say sorry for the mistakes I make, I always take responsibility and acknowledge when I'm wrong. I fought in wars (in the military), I have fought mental health my entire life, I struggled within the system my whole life, I have loads of friends who I'd die for and who'd die for me, while my parents have no one and are just a bunch of entitled sour lonely fucking boomers. Who's the responsible adult here? Although I doubted myself many many times, my therapists and friends have ensured me it's them, not me. And I started to see that too, so I ended my relationship with my parents for good. And with my entitled little brother who always takes my mom's side no matter what.
At least you got out of that horrible family dynamic! Don't know if I can judge from one comment, but sounds like your wellbeing didn't benefit from the relationship and am happy for you that you're doing better for yourself. And of course there are some nice boomers but even if I have the nicest, most loving parents they just seem they don't care about the future of their kids and next generation while the generations before tried to make their kids' lives better.
Sadly it took me way to long to let go of the constant argument people with a good relationship with their parents tell me: "but they're your parents dude!"
Exactly, they are, I didn't chose them, unlike my friends who actually treat me with respect and dignity. Fuck toxic family, fuck toxic people, surround yourself with people who love you for who you are and who you love for who they are. Treating each other with mutual respect. Fuck manipulative narcissistic behavior. Even when they are your parents.
They demand to be repaid for raising you. We didn't chose to be put on this fucking world. They chose kids, it's their responsibility. We owe them nothing. "But we love you." Then fucking show it instead of making our lives miserable. Give love, get love back. Give shit, demand love back? That's not how it works. "But everything we do, we do with good intentions." Impact weighs heavier than intentions. They prioritize their own wishes over the happiness of their kids. I hate religion, but I like the expression "the road to hell is paved with good intentions". Something especially boomers will never understand. And sadly many more in this world. Compassion and accepting others for who they are, the way they are and want to be, are sadly rare these days. My goal in life is to show it still exists. And I have many good friends because of it.
My parents live 2h drive away and are already guilt tripping me for that drive. While they would come to me 10% of the time, I had to go there 90% of the time. I'm autistic too, my mom drains me within an hour. No joke.
Goddamn, with their parents’ history, I cannot possibly think of this as anything but mental decline. The basis of their political affiliation is a reflection of the state of their brain, to be sure.
What's 5x 700,000 ?
"The Friedmans finally put their house on the market in May for nearly $4.5 million"
Cry me a fucking river, boomers.
Enough that they shouldn't fucking care.
Yeah, and the tax is only on the profit they make, not the entire selling price.
And any capital improvements will lower that ‘profit’ too. So anything from a new water heater to a new roof can be used to raise the cost basis of the home lowering the tax paid.
Both of those examples are “regular maintenance” that aren’t legally capital improvements
At least as importantly , who tracks this stuff for the decades you might live in a house. I always thought this exemption was good in fairness alone: as someone just trying to live, I’m unlikely to keep the decades of paperwork needed for this, whereas a wealthy person with an accountant or business manager would
Yeah but profit is just how long you’ve lived there
Your home listed at...$4,500,000 is going to cost you $700,000 in taxes? Cry me a river straight to the bank with your remaining $3,800,000. I hope they raise the tax.
Plus they're in their 70's. Pretty sure 3.8 mil will last you the rest of your life.
I'm in my 30s and could make 3.8 million last me the rest of my life. Even if I wasn't good at investing and just put it in an interest checking account earning 1% interest, it would earn 38,000 a year. Which is right around what I make now. There's two of them, and you do have to account for inflation, but it really wouldn't be difficult to get 2-3% return on that and still be able to live off the interest alone.
Not if you need it to buy a house.
Yep that's how taxes fucking work
The unfair part of this is that the $500k threshold for the tax hasnt been updated since 1997.
In 1997 the average price for a house in California was about 180k now its $800k. If the tax was the same ratio it now wouldnt apply until the house was worth about 2.2mil (napkin math, I'm not getting out the calculator) Now I'm not saying they arent crying about a problem many of us would kill to have but thats a difference of about $340,000 in taxes.
It's still only "up to 20%" 🙄
They knew the limit when they bought the house. And it's gone up more than they could've dreamed. That's plenty fair.
Problem is their house went up by a huge percentage, but so to has every housing arrangement they will need.
Maybe not a whole lot of sympathy for someone having to sort out living arrangements with 'only' $2.8 million or so to work with, but this can scale down to pretty 'normal' house prices like $500k.
And how much have wages gone up? $500k is still very expensive, sounds like maybe it should be a little more but it sounds more like a consequence of letting housing prices run away for a few decades.
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.
Keep in mind, it's profit. If you bought the house for $500k and selling for $800k, that's only $300k in profit. Plus you can include the cost on renovations and there are lower percentages when you own and live in the house for over 2 years.
This is the dumbest fucking article, holy shit. Fucking boomers. Cry more about paying the already generously low LT cap gains tax. Jesus fucking christ.
The one thing that would turn my exhausted ire into joyful schadenfreude is if they equity-leveraged the shit out of it, and didn’t understand that this would hit them in the balls when they eventually sold.
I wish the boomers would just die already. At this rate I’m going to live my whole life under their greedy little thumbs
Yeah. My wife and I paid roughly 38% on the 120k we made last year through grueling hours and hard work.
These old fuckers should pay at least that much in taxes on the house they made millions on just by living in it.
There's nothing even remotely unfair going on here
Sounds like they can afford it if they're rich enough to own that house.
What makes this even worse is the article doesn't mention all the money this couple saved by not paying rent for the duration of their home ownership. So not only would they make profit on the sale, they didn't have to pay rent for all those years, and instead got to keep that money, which puts them at a much bigger financial advantage than folks who can't afford a home in the first place.
Where exactly is this a dystopia? The part where rich people too have to pay taxes?
I guess you're mistaken, /r/aceoandultrawealthydystopia is a different sub.
The fact that the house is woth that much in the first place. Thing is owning a single home doesn't make you rich, since you need a home to life, you can't get that money unless you're willing to downgrade. Now these people are, but the tax is limiting their options. Real estate should be taxed while you have it, not when you sell.
Boomer couple is doing boomer things.
The tax is only 20%, like you get to keep the other 80%. That sounds pretty good to me.
Normal rich folk give the house to their children to use and buy something in a retirement community with their children's support. None of their children live with them, kind of a red flag the author buried.
It'd be funny if they died like a week after the sale closes and they move into the new community.
Oh no. They only get to keep 2.8 million? Whatever will they do?
So in other words it is taxed substantially less than income... Even though it is clearly a form of income... Cry me a river...
I think that if you only own one property it would make sense to pay the tax on gains at the end of the fiscal year. If you sell $3.5m house and same year buy a smaller $2m house you only pay 20% of the $1.5m you actually gained. It's idiotic that simply moving somewhere can cost you 20% of your house value, even if you moved to house of equal value and haven't made any money.. If you own more then one property you pay 20% of the sale profit same as now.
For a couple, the first 500k of profit is ignored from the sale of a primary home lived in for at least 2 years. Which is more than an 11% break on their tax bill if they had gotten the house for free.
(So sale price of house - original full cost of house - 500k deduction ) * 20%
Everyone in here is ripping these people and ignoring their actual situation and the problem it creates for all of us.
If their profit is that high, they bought decades ago, when the price of a home like this was in the reach of a normal high paid professional. Decades later after raising kids, paying for college, and saving normally, they might not be wealthy, or even rich in cash and investments. This house might be a large majority of their net worth. And guess what? Anywhere they want to move is going to have had the same crazy inflation as their current home. Why would they sell when, after taxes, any place they buy with what's left will be a major step down.
And for their specific example, 55-plus communities usually sell for much less per sqft because they come with huge HOA fees to fund all their amenities. Generally people expect to pay these fees with the difference between the sale of their old home and the new one. They might not be able to afford the HOA fees after taxes.
They've got two choices: They can sell and either make up the taxes with their savings, drastically reducing their standard of living (if they're even able to do that, don't forget if they take 700k out of a 401k all at once they'll get wrecked in taxes that year) or move somewhere shittier with the after tax proceeds. Or stay in their too large home, keeping it off the market. Edit: I forgot a commonly used option; keep the old place, rent it out and charge enough to pay the mortgage on the new place and property tax, HOAs, and maintenance on both (and why not a little profit too?), further fucking the market.
Empty nesters staying in their family homes keeps them off the market driving up the costs for young families and everyone else in the market as a whole.
As far as a solution goes, I'm not a fan of a larger exemption. I would advocate a special account for home sale profits, kind of like an HSA or a 529, that could only be used tax free for qualified expenses like purchasing a home, property taxes, and HOAs. But anything that encourages older people to leave their too-large homes for something more suitable would help the market for everyone.
If you can't get past "boo hoo rich people problems," cut the numbers in half, or more. The problem persists. In California a profit in excess of 500k (250k for a single person) after decades of living in a modest family home is not at all rare. Many normal people who are not rich by any stretch find themselves in this situation.
My MiL was in this exact situation (selling and moving to a 55-plus community), and she is not rich. To make the numbers work I had to make her investments higher risk/higher reward than they should be for her age to allow for larger withdrawals. Luckily she has my wife and I to make up the difference if it goes tits-up, but not everyone has that luxury.
If taxes go down, prices can go up even more.
I know a way they could avoid those capital gains taxes...
You're fucking kidding me, how does this count as a dystopia?
Oh God Gen X couple can't sell second home 🙄
Edit: oh God I actually read and figured out what this moron is posting.
These people won't even pay that much tax. This is some dumb ass, "I don't know how capital gains works" shit. That 99% of you would support if this engagement bait wasn't posted.
It's just nice reading everyone ripping this article to shreds. Thanks for making my day brighter.
Taxes are a percentage of profit/income/wealth. If someone is getting hit with nearly a million dollars in taxes I would argue that likely means they need to be getting hit with even more taxes. We tax the wealthy too little practically everywhere in the world, and one doesn't get millions of dollars wealthy without systemic injustice - not even speaking about hundred millionaires and billionaires who should absolutely have 95% of their wealth taken away and redistributed to the public for the betterment of the species and the planet.
Im no fan of the .ml troop but this post deserve their presence. Shame they can't see/post here.
Can y'all like think for five minutes before you get hate boners when you see the words "million" and "dollars" in a sentence? These are two old people trying to move houses post-Covid in California; worrying about nearly a million dollars being shaved off their retirement is a very reasonable concern. The fact that you don't have this kind of money to retire is because you're being fucked over, not because they're hoarding money.
If California is too expensive for them why don't they move somewhere within their means? Get a roommate? Stop eating avocado toast?
Note while the amount is dramatic, the same general principle applies for a widow selling their 500k house that was 100k and being out 80k in taxes and stuck having to get living arrangements for 420k in a market where her house sold for 500k.
Particularly egregious: if a landlord sold the same sort of house they could turn around and buy a different 500k house with zero tax burden. This exemption is not available to private homeowners, only for investment properties you don't live in. We give a tax break for using houses as purely financial instruments but penalize people actually buying for themselves.
Your widow would only be out 30k, not 80. There's a deduction for primary home profits.
The 1031 like-kind exchange you're talking about is only a deferment. It's more available yes, but if that exchange chain is ever broken all those taxes need to be paid
You are right about 30k instead of 80k, my mistake, but still a fair chunk of change.
The deferment is reasonable, but it's insane that an investment property can be traded in without taking the tax penalty, but you can't do that with a residence.
You jest but that's exactly my point. This logic is messed up when it's applied to anyone, so it's messed up when applied to wealthier-than-average-but-not-outrageously-so retirees.
I'm sorry, but if they have three million dollars left after taxes when they sell their house, they are extremely wealthy. Three million dollars is easily enough to support a couple their age for the rest of their lives.
And I was actually serious when I said "live within their means" -- if three million dollars is too little to live on in California, they can move somewhere cheaper.
3 million is not extremely wealthy. You're comparing upper middle class retirees to people who own multiple yachts worth more than this couple's biggest asset
If they already have a house, otherwise the math changes dramatically. In many parts of California the median house costs more than one million dollars, and a retired couple needs a little north of a million per decade to live with a "normal" quality of life in California according to Google. That's three million right there, before you get into any of the million things that could require significant sums of money a retired couple could face in their remaining 15 or so years of existence.
Why should they? Hell, why should anyone? If they want to stay in their home state, why should they be forced to leave? People have a right to live, and the fact that that right is denied to too many people is no excuse to deny it to everyone else.
They're also missing the point that if people like this aren't selling their homes that can't be good for the housing market as a whole.