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.
This is nonsense. The tax-free allowance is massive and they’re only required to pay tax on all the free money, nothing they actually earned.
If there was 100% capital gains tax on all domestic property, we wouldn’t have all that free money pushing up the cost of housing for everyone.
So assuming their house is worth $1M, they get $500k tax free and pay 14% on the remaining $500k, or $70k which comes out to 7% of the sale price. $930,000 doesn’t seem like too bad of a haul.
I could be wrong, but “capital gains” to me means only on the increase in value. So if they bought the house for $200k, they would be paying tax only on the $300k.
I think that’s accurate. I believe any improvements you’ve made can also be deducted from capital gains.
Not massive enough for how US home prices have ballooned. Even from 2016-2023, it looks like housing in El Cerrito have almost doubled from $750,000 to $1.1 million. If they bought 40 years ago, the gains would be even larger. FRED says housing prices nationally have 3x’d since 1970, which doesn’t even account for localized price growth.
It is very easy to have a capital gain above $500k these days.
Definition of tax: https://www.nerdwallet.com/article/taxes/selling-home-capital-gains-tax
FRED data: https://fred.stlouisfed.org/series/QUSR628BIS
It’s free money.