After 33 years and four children, Baby Boomers Marta and Octavian Dragos say they feel trapped in what was once their dream home in El Cerrito, California.
Both over 70, the Dragos are empty nesters, and like many of their generation, they’re trying to figure out how to downsize from their 3,000-square-foot, five-bedroom home.
“We are here in a huge house with no family nearby, trying to make a wise decision, both financially and for our well-being,” said Dragos, a retired teacher.
But selling and downsizing isn’t easy, appealing or even financially advantageous for many homeowners like the Dragos family.
Many Boomers whose homes have surged in value now face massive capital gains tax bills when they sell. This is a kind of tax on the profit you make when selling an investment or an asset, like a home, that has increased in value.
Plus, smaller homes or apartments in the neighborhoods they’ve come to love are rare. And with current prices and mortgage rates so high, there is often a negligible cost difference between their current home and a smaller one.
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The entire argument comes down to “oh, those poor people, they have to pay their fair share of taxes on the huge amount of equity they’ve just earned”. Seriously, the bias is disgusting.
Equity isn’t money in your pocket, though, and just because the house is suddenly worth $1.5 million on paper doesn’t mean they have extra money to pay their tax bill.
I know lots of people are bitter about the housing market but I don’t think it’s the fault of people who bought a home and just want to live in it. The people (or corporations) who buy homes as investment properties or to flip them are probably more worthy of anger.
The article is explicitly about capital gains. It’s not like they have to pay the tax before they sell it. Use the proceeds from selling to pay the tax. That’s the whole point.
Don’t have the money to pay the tax bill? Show me that math.
You buy a house for 300k, sell for 700k, you made 500k, that’s 15% tax filed jointly on long-term property. But wait! There’s more! You get to exclude the first 250k if it’s your primary residence! So you’re paying 15% on 250k. $37,500. Which is substantially less than income taxes.
They just sold the house and (assuming it was paid off) have 700k (less realtors fees, etc.) and absolutely could pay the tax. Even if it wasn’t paid off, the capital gains would be reduced and they would owe less money. We’ve moved and sold 2 homes in the last 20 years, made capital gains on each sale, and paid the appropriate taxes because we aren’t idiots and didn’t piss the money away.
So tell me again how they don’t have the “extra money to pay their tax bill”?
Guess they are using the alternate definition of trapped. They of course could rent the house and use the rent money to rent/buy thier new place and probably have a little profit at the same time.
Ah yes, more landlords, that’s what society really needs!
They’re happy to say that younger folks should be okay with it, but as soon as they’re faced with it, it’s suddenly a tragedy?
Horse shit. Fuck anyone gaslighting the value of housing security. I hope their home value turns to dust.
Most homeowners don’t have to pay capital gains on their home when they sell. Thanks to tax legislation from the ’90s, a gain of up to $250,000 for a single tax filer or $500,000 for a couple filing jointly is exempt from tax. That’s providing the sale is of the homeowner’s primary residence and that they meet other requirements such as living in the property for two of the past five years.
That means if a couple bought a median priced home in 1987 for $100,000 and they’ve lived there as their primary residence and are selling it today for $550,000, the $450,000 gain from that investment is not taxed because it falls under the $500,000 exclusion to capital gains taxes.
However, if those same $100,000 homebuyers lived for 37 years in an area that has seen enormous growth in home values — as is the case for many parts of California — and their home now sells for $2 million dollars, that’s nearly $1.9 million in profit, of which only $500,000 is excluded from taxes.
A normal.person would still be ecstatic…
Not to mention that the capital gains tax ranges from 10%-20% depending on income, so of the $1.4 million in taxable gains they’re only paying $140,00-$280,000 dollars, meaning after they sell the house they still get $1.7 million profit.
The issue is with the tax and high costs of homes, they break even or worse when downsizing. They aren’t realizing that profit from selling because they are trying to buy another, smaller house.
If their new house is less than a million, they’re fine…
Very few people “downsize” to a million dollar property.
Hell, they get $500k before any tax
