MicroWaveJan 30, 2024

Boomers wanting to downsize face huge tax bills

https://lemmy.world/post/11371073

Boomers wanting to downsize face huge tax bills - Lemmy.World

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.

Show threadPugJesusJan 30, 2024

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.

Oh, how horrible. /s

Show threadfriend_of_satanJan 30, 2024

If it was just a problem of paying more taxes then the argument would be bullshit. The main problem is buried at the end of the article:

A homeowner who keeps all the profit of a home that sells for $500,000, for example, may find that a condo in their same area, where they can age in place, is $450,000. After calculating realtor fees and closing costs, the profit hardly covers the new purchase, let alone provides any extra income for retirement.

This is the real reason they are not moving. They would be stepping backwards financially instead of stepping forward.

Show threadDr. DabblesJan 30, 2024

… What’s the issue?

They paid for the next place, including fees, and still have $50k in their pocket? How greedy does someone need to be, exactly, before we consider the behavior repugnant?

Show threadfriend_of_satanJan 30, 2024
The issue is that they sold a large house and bought a small house and had very little money left over.
Show threadDr. DabblesJan 31, 2024

Aww, poor them. They only had enough left over to pay fully for their next place and pocket $50k.

There is little incentive to downsize.

As long as you ignore property taxes and maintenance costs. Which normal people don’t ignore.

Show threadBlooperJan 31, 2024
Maintenance costs are probably fairly minimal given how little wear and tear happens in an empty nest. And property taxes for elderly folks are usually frozen or nearly frozen in place - meaning the next buyer will be paying a much higher tax on the same house because they won’t qualify for those exemptions.
Show threadDr. Dabbles
It seems like you don’t own a home, so I’m not sure there’s much point in continuing this conversation.
Jan 31, 2024 at 3:41pmWeb
Show threadBlooperJan 31, 2024
To the contrary - I own a large home in an urban area and it is filled with my children. But we don’t have to have a conversation - I was only pointing out the flaws in your logic. My tax bill will be $12k this year while my elderly next door neighbor’s will be a fraction of that. Our homes are identical (3k sqft over 3 floors). She’s not leaving because it would make little financial sense to do so. This is quite common.
Show threadDr. DabblesFeb 1, 2024
Sounds like one of those people that doesn’t take a raise because it’ll put them in a new tax bracket. People that don’t know how the adult world works.