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.
Aww these poor Boomers just made too much money on their homes and now they have to pay some taxes if they want to sell for huge profits. Boo fucking hoo.
While also taking away starter homes.
What the fuck am I supposed to live in?
I’m sick and fucking tired of moving from rented basement, to rented attic, to basement, to garage… Etc… every 2 goddamn years I have to move. I’m almost 40, never going to be married, and stuck renting absolute overpriced shit. I’m so over it.
Not that I don’t emphasize with your struggle - I just want to point out that there are people stuck in those “starter homes” with 5 or more kids who could really benefit from a 5 bedroom upgrade because they’re at a point in their lives where they can afford it and they need it. The housing crisis we’re living through produces victims up and down the income ladder.
Also this whole problem can be traced back to our absurd zoning laws blanketing most of California and the US. Still the boomers’ fault, but not for decisions they’re making today. Most of them are screwed right along with the rest of us. :(
And with current prices and mortgage rates so high, there is often a negligible cost difference between their current home and a smaller one.
Is this accurate? I’m having a hard time believing it, but if it is true, then they need all cash to buy a smaller home. Downsizing shouldn’t be a money-losing proposition, otherwise there would be 0 interest in doing it.
Article is lying by omission
The only way they pay cap gains is if this is a second house
Also must be nice to be able to afford a 3000 sq ft home on a retired teachers salary…fuck these ppl honestly.
The only way they pay cap gains is if this is a second house
Not the only way. There are several different ways you might have to pay cap gains on a home that isn’t a second home.
But for the article its likely this way they have to pay:
“Both the IRS and FTB provide a capital gains tax break for home sellers who meet certain conditions. The maximum amount of capital gain that can be excluded is $250,000 for single filers or $500,000 for a married couple filing jointly.” source
From OPs article:
“The taxable gain of $1.4 million at 20% would mean those homeowners are facing a $280,000 tax bill. In a state like California with additional tax, the overall payment would be over $450,000.”
They bought the house at $100k, and are walking away after taxes with $1.55m. Boo hoo? They’re saying they get a big tax bill because of inflation, but they’re also able to sell their house for 19x what they bought if for for similar reasons. If they want to sell it to me for $600k and have zero cap gains taxes, I’ll take them up on that offer.
It’s truly an insane housing market, but can they even afford to downsize? I have no way of judging the cost there, but certainly here there is less than $450k difference between a typical house and a 2-3 bedroom condo. Since ts the land that scarce, smaller places go up in value along with the larger, so you never know.
In a much lower cost of living area, when my Mom downsized from the big house I grew up in, she both took a sizeable gain and yet still had to take a mortgage to buy a 2 bedroom condo to replace it
Yeah no sympathy for large taxes on massive capital gains. Especially capital gains from the massive increase in housing costs
So they pay those taxes with the gains from the sale? What’s the fucking problem?
But unless this is a 2nd home, I don’t think they’ll pay anything unless it’s over some high amount.
Ya to me this sounds more like people complaining they aren’t making as much money as they want to?
If they’re in California, they might have gains of over a million dollars. The exemption cuts off at $500k of total gains; anything beyond that has to have taxes paid.
So they’re whining about paying taxes on a million dollar capital gain. They can go fuck themselves.
Reminds me of when I was in college in business classes and some would make arguments that raising taxes would cause people not to open a business.
We used to argue around the idea that if someone opened a business, made a million dollars and stood to keep $600k of it rather than $700k of it, then somehow that still net profit means less profit therefore they won’t do it? Genius thought process some people have.
Why the fuck do you care? It’s their money from their house. It’s not yours to benefit from
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
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.
Feels like the crux of this whole thing is that housing shouldn’t be an investment.
How could it be changed so it wouldn’t be?
Land is mostly a set resource with new developments and cities slowing. Home development follows land and while there’s been a boom, overall it’s been slowing. As there are more people, demand for housing increases.
All of this drives cost of homes up. So the longer you are in a home, the more it and/or the land it worth. Usually outpacing inflation. So when you sell, it’s worth more. It’s an investment by default even for those people who own 1 normal-sized single family home. It was an investment even when housing prices were reasonable decades ago.
… 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?
The issue is that they sold a large home and bought a small home and had very little money left over. It doesn’t make financial political sense to do that. They might as well stay where they are. There is little incentive to downsize.
Part of the solution to the housing crisis is solving that incentive problem.
I think the issue is that with mortgage prices and the incredible costs of homes in California, capital gains tax comes into play for them when the vast majority of homeowners never even consider it.
So you have people with a large single family home wanting to sell and move into a small single family home (1-2bed) or even a condo and they end up with no benefit from doing so and potentially even an expensive mortgage. Essentially they are selling an Escalade to get a Civic and breaking even, which seems odd.
I think the capital gains tax exception should be expanded to be waived for single family homes under XXXX sq ft, with the above stipulations (living in the home continuously). It’s not these people’s fault their neighborhood shot up in price outpacing regulations meant to protect normal home owners.
Their only real out in this situation is to move away from where they’ve lived their whole lives.
Condos generally aren’t much cheaper than houses. They would have the same issue if their region’s real estate was half as expensive. They would have had this problem 10, 20, 30 years ago if they were retiring. If you sell a house in an expensive area and want money left over, you either have to choose a shittier house/apartment to live, or a cheaper area.
Their home is worth 2mil. They absolutely would not be stepping backward.
That’s a fictional scenario, though. Why would an entire house be selling for the same price as a tiny condo with HOA fees? These people have a huge house worth millions of dollars, so I’m confused why they would use a $500k sale price in their hypothetical scenario.
Sure those are made up numbers but they illustrate a real issue. Where i live, and I’m sure other high cost of living areas, it’s the land that’s expensive, in short supply. The actual house might be a much smaller part of that.
What that turns into is prices may be insane, but a house isn’t much more than a condo isn’t much more than a vacant lot. Then when you buy, taxes are reset to the new value, so property taxes will now be much higher and realtors commission will be insane. So they need to take a mortgage and take a cost of living hit on the taxes, then are clobbered by high interest. They may literally not be able to afford to downsize
Haha, I mean I get it… Giving away money to uncle sam sucks but I agree with your sentiment. They are coming out ahead, that house was an investment that is paying dividends. I am hoping to have that problem some day!
Contributing financially to the democratic society in which you spent the entire time of gaining monetary value able to vote which enabled the increase in value of your property? That’s the thing here, this isn’t throwing money away, and it isn’t imposed without your say. Taxes aren’t fun, and we don’t always like where they go, but as adults we should be able to respect them. They’re part of how our society functions and a necessary component of many nice things we need in order to prosper.
This long time anti tax attitude in this country is part of what destroyed our infrastructure, ruined our regulatory bodies, and contributed to our massive wealth gap.
To be fair, it wasn’t the attitude that destroyed the infrastructure. Despite people’s attitude toward taxes, they still paid. The problem is precisely that they don’t like where that money is going. In most cases, their taxes are just funding a trust fund baby’s extra paycheck while they sit in office and neglect their duties while discussing divisive politics to distract from the fact that they are robbing the American people. A lot of people aren’t against the idea of paying taxes, but rather America’s inability to appropriately spend money on the common good.
On the other hand; would you personally make that choice if you were in their situation? I am willing to bet you, nor any other reader, would not. While that doesn’t excuse the greed aspect of it; it does cast at least some light upon why they are refusing to sell and take a loss on it.
If you only paid $100,000 and you made $1,000,000; you’d have $900,000 profit; of which you’d probably only see ~60% to ~40% of, if Capital Gains taxes are anything near what I think they are. If we assume a “worst case”, where the Federal Government takes 40% and the State takes about 20% more, that means your tidy profit is only about $390,000. That means you’ve probably got to secure another $140,000 in financing on average to pick up a more modest $500,000 home (in today’s market) to retire in.
But villainizing the boomers isn’t going to solve the housing crisis easier either. We legitimately need more homes. We. Need. Them. Yesterday. So maybe the policy needs to lean towards bigger developments that cost less. We did it during WW2; where massive amounts of homes were built cheaply. We probably need to achieve that again, and do better than we did during a war that was diverting supplies away from the effort.
How do we achieve that? I don’t know.
If you only paid $100,000 and you made $1,000,000; you’d have $900,000 profit; of which you’d probably only see ~60% to ~40% of, if Capital Gains taxes are anything near what I think they are. If we assume a “worst case”, where the Federal Government takes 40% and the State takes about 20% more, that means your tidy profit is only about $390,000. That means you’ve probably got to secure another $140,000 in financing on average to pick up a more modest $500,000 home (in today’s market) to retire in.
Capital gains taxes range from 0-20% Federally, depending on your income. In Cali, the addition is up to 13%
Which means that worst case scenario, you sell a property in Cali, you would pay 33% of the profiit above the original price of the house and the 500,000 exemption. So on a house you bought for 100,000 and sold for 1,000,000, you’d pay the awful, awful price of… 133,000, leaving you with a paltry $867,000.
capital gains tax rates are a lot lower than that. https://en.wikipedia.org/wiki/Capital_gains_tax#United_States
these people are mostly greedy fucks that don’t want to pay their very reasonable share of taxes on their investment return.
