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Capital gains is only applicable when you sell the house and it's not your primary residence, or if you made a ton of money on it. And it's only a tax on the ap

Capital gains is only applicable when you sell the house and it's not your primary residence, or if you made a ton of money on it. And it's only a tax on the appreciation of the house, not its market value. Real estate agent fees are only applicable on x% of the value of the house you sell. Higher property taxes do stink but are not applicable after you sell the house. I'm not sure why you can't afford to move. Have you talked to a tax specialist or a financial advisor? If you bought a house at X and sold it at 2x, even if you haven't paid any of the principal of your mortgage(if you have one), you would likely pay a maximum of ~25% of X between capital gains (if you own multiple homes) and real estate agent fees. So you still made 75% of X from appreciation. I don't really understand what you think your problem is.

Danihan 9y ago
Thank you -- this post did not add up to me either. Do a FSBO if you're that worried about brokerage fees.
ralusek 9y ago
You're right on 2/3 of those things. Capital gains is never a "cost" to them, they are by definition only going to be taxed on their gains. Real estate agent fees, like you said, are based off of the sell value, so unless their commission starts approaching 50% of the value of the house on a 2x gain...they make money. And if their mega-agent charges them 50% of the value of the house, then at least there are no longer any gains to be taxed on :) The property taxes, however, make sense. Some places lock you in to a certain rate at the purchase price, and they said they bought very low. The argument is that they would be paying more in property taxes for a cheaper house, because they would no longer be locked in to their favorable current rate, which is entire likely given their circumstance.
- opportune 9y ago
  You're right, I thought the parent was complaining about higher property taxes, not that property taxes would increase if they were to move to a similarly valued house. That does disincentivize moving into an equally valued house, but moving into that house would have the parent paying about ~2% of X each year in property taxes as opposed to ~1% of X. The appreciation of the house still covers the increase in property taxes for the next 75 years.
lisper 9y ago
Suppose I bought my house for $1M and prices are stable. I can sell my $1M house and buy a different $1M house and the net cost to me is 6% agent fees. But if prices have doubled now the net cost to me is much higher. The agent fees are double what they were, and I have to pay cap gains on $500k. All that is money I have to come up with somehow in order to complete the transaction. I either have to write a check, or take on more debt. The higher prices go, the more expensive a lateral move becomes. Yes, I have more home equity if prices go up, but that only helps me if I cash out and move out of the area.
- opportune 9y ago
  Aren't agent fees and capital gains only applicable after the sale of the house? I think I'm beginning to see your problem, which is that a lateral move is expensive. But the lateral move is only more relative to your initial buying price. A lateral move (in terms of value of your house and in the same area) would in your example cost about ~$135,000. I see why that would cause a liquidity problem but your actual equity is still higher than before.
- gamblor956 9y ago
  Not understanding your complaint. You would have to sell your house for more than $1.5M to have any taxable capital gains. You would have to sell your house for more than $2.5m to have an effective tax rate of more than 10% on the sale. (For example, if you sold your house for $2m, your effective tax rate on the sale would be 5%, ignoring AMT and assuming no other significant sources of income.) Boo hoo. On the second point: the only cash you need to come up with is the down payment for the new house, which you would get out of the proceeds from selling your old house. If you sold your house for 2x the purchase price, you have more than enough cash to pay the down payment. Boo hoo. Complaints like yours are why people outside of the Bay Area really hate Silicon Valley.
  - graedus 9y ago
    It only becomes remotely intelligible if you include these extra constraints: - Assume all other houses in the area also appreciated the same amount as the poster's house (say 2x). - Assume the poster will only consider a move within the same area. Now if they want to make a "lateral" move, they are looking at $2m houses, not $1m houses, since all other houses they would consider - local to their area - also increased in value. I feel like they should just get a $1m house (yes, a "downgrade") if that's the case and have fun with their near-$1m profits, but what do I know.
bzbarsky 9y ago
You can actually get screwed more by going from X to 4X than by going from X to 2X _if_ you want to buy your new house in the same market. In the simplest case, consider that you want to move to a house of the same value (e.g. closer to work). That's a lot easier to do if there was no taxable appreciation in value than if there was. But even when downsizing you could run into problems; see the example I give elsewhere in this thread: https://news.ycombinator.com/item?id=15706565 https://news.ycombinator.com/item?id=15706565

Danihan 9y ago

Thank you -- this post did not add up to me either. Do a FSBO if you're that worried about brokerage fees.

ralusek 9y ago

You're right on 2/3 of those things. Capital gains is never a "cost" to them, they are by definition only going to be taxed on their gains. Real estate agent fees, like you said, are based off of the sell value, so unless their commission starts approaching 50% of the value of the house on a 2x gain...they make money. And if their mega-agent charges them 50% of the value of the house, then at least there are no longer any gains to be taxed on :) The property taxes, however, make sense. Some places lock you in to a certain rate at the purchase price, and they said they bought very low. The argument is that they would be paying more in property taxes for a cheaper house, because they would no longer be locked in to their favorable current rate, which is entire likely given their circumstance.

opportune 9y ago
You're right, I thought the parent was complaining about higher property taxes, not that property taxes would increase if they were to move to a similarly valued house. That does disincentivize moving into an equally valued house, but moving into that house would have the parent paying about ~2% of X each year in property taxes as opposed to ~1% of X. The appreciation of the house still covers the increase in property taxes for the next 75 years.

lisper 9y ago

Suppose I bought my house for $1M and prices are stable. I can sell my $1M house and buy a different $1M house and the net cost to me is 6% agent fees. But if prices have doubled now the net cost to me is much higher. The agent fees are double what they were, and I have to pay cap gains on $500k. All that is money I have to come up with somehow in order to complete the transaction. I either have to write a check, or take on more debt. The higher prices go, the more expensive a lateral move becomes. Yes, I have more home equity if prices go up, but that only helps me if I cash out and move out of the area.

opportune 9y ago
Aren't agent fees and capital gains only applicable after the sale of the house? I think I'm beginning to see your problem, which is that a lateral move is expensive. But the lateral move is only more relative to your initial buying price. A lateral move (in terms of value of your house and in the same area) would in your example cost about ~$135,000. I see why that would cause a liquidity problem but your actual equity is still higher than before.
gamblor956 9y ago
Not understanding your complaint. You would have to sell your house for more than $1.5M to have any taxable capital gains. You would have to sell your house for more than $2.5m to have an effective tax rate of more than 10% on the sale. (For example, if you sold your house for $2m, your effective tax rate on the sale would be 5%, ignoring AMT and assuming no other significant sources of income.) Boo hoo. On the second point: the only cash you need to come up with is the down payment for the new house, which you would get out of the proceeds from selling your old house. If you sold your house for 2x the purchase price, you have more than enough cash to pay the down payment. Boo hoo. Complaints like yours are why people outside of the Bay Area really hate Silicon Valley.
- graedus 9y ago
  It only becomes remotely intelligible if you include these extra constraints: - Assume all other houses in the area also appreciated the same amount as the poster's house (say 2x). - Assume the poster will only consider a move within the same area. Now if they want to make a "lateral" move, they are looking at $2m houses, not $1m houses, since all other houses they would consider - local to their area - also increased in value. I feel like they should just get a $1m house (yes, a "downgrade") if that's the case and have fun with their near-$1m profits, but what do I know.

bzbarsky 9y ago

You can actually get screwed more by going from X to 4X than by going from X to 2X _if_ you want to buy your new house in the same market. In the simplest case, consider that you want to move to a house of the same value (e.g. closer to work). That's a lot easier to do if there was no taxable appreciation in value than if there was. But even when downsizing you could run into problems; see the example I give elsewhere in this thread: https://news.ycombinator.com/item?id=15706565 https://news.ycombinator.com/item?id=15706565