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> This is why, for example, current California owners have no problem buying in e.g. Washington: even if a house in both places were $1billion, they can just tr

by acchow 5y ago

> This is why, for example, current California owners have no problem buying in e.g. Washington: even if a house in both places were $1billion, they can just trade. If it's your primary residence, you can't trade one from California to Washington because you would have a large tax bill when selling one. You can't even trade within California itself. If you bought a home for $500k 20 years ago and now discover it is worth $2M, you cannot even trade your $2M for a different $2M a few blocks over. You would have to pay taxes on a $1.5M gain. If instead the home s an investment property which you rent out (which have higher interest rates), then you could do a 1031 exchange.

avidiax 5y ago
You can use your equity in the first house to buy the 2nd house, right? And this person with the $2M home in California can, even after taxes and transaction fees, recover their original investment, plus have enough left over to e.g. buy a $1.5m home in cash, or a much higher priced home with a mortgage?
- acchow 5y ago
  That is not at all a trade. That is picking up more debt to make up for the tax losses when trying to swap homes. Suppose you haven't worked for the past 20 years.
geebee 5y ago
That's largely true, though tax law does reduce the tax hit for people over 55. California recently amended prop 13 so that people over 55 can carry their existing property tax 3 times, and modified it so that they can purchase a more expensive house and keep the lower tax burden on the amount they got for their previous house. They also greatly reduced the extent to which heirs can inherit the low previous property tax (I think it's now limited to 1,000,000 and has to be a primary residence). The inherited low property taxes always seemed pretty egregious to me (almost like an aristocracy of landed wealth). The whole thing is pretty dismal, honestly - I'm not opposed to low property taxes, but a tax regime where people pay vastly different taxes on similar properties causes all kinds of problems (and is fundamentally unfair, in my opinion). Much of the change to the law, though, was driven by real estate agents who want to increase transactions. The previous law preserved low property taxes as long as elderly people didn't sell and left the house to an heir. Now, people 55 and and over can sell repeatedly without increasing their taxes, and there's more incentive for heirs to sell the house. That's as much was 4 commissions where there used to be none.
kjkjadksj 5y ago
It might not be a clean trade but their are situations where your equity growth in house 1 gives you enough liquidity for a larger down payment on house 2 where your monthly payments might even be lower, especially if it means things like you no longer paying pmi. This is how the property game is played in places with moving real estate markets, I know people who paid more a month for the condo they lived in a few years building equity and seeing gain to afford a down payment on a single family home.

by acchow 5y ago

avidiax 5y ago

You can use your equity in the first house to buy the 2nd house, right? And this person with the $2M home in California can, even after taxes and transaction fees, recover their original investment, plus have enough left over to e.g. buy a $1.5m home in cash, or a much higher priced home with a mortgage?

acchow 5y ago
That is not at all a trade. That is picking up more debt to make up for the tax losses when trying to swap homes. Suppose you haven't worked for the past 20 years.

geebee 5y ago

That's largely true, though tax law does reduce the tax hit for people over 55. California recently amended prop 13 so that people over 55 can carry their existing property tax 3 times, and modified it so that they can purchase a more expensive house and keep the lower tax burden on the amount they got for their previous house. They also greatly reduced the extent to which heirs can inherit the low previous property tax (I think it's now limited to 1,000,000 and has to be a primary residence). The inherited low property taxes always seemed pretty egregious to me (almost like an aristocracy of landed wealth). The whole thing is pretty dismal, honestly - I'm not opposed to low property taxes, but a tax regime where people pay vastly different taxes on similar properties causes all kinds of problems (and is fundamentally unfair, in my opinion). Much of the change to the law, though, was driven by real estate agents who want to increase transactions. The previous law preserved low property taxes as long as elderly people didn't sell and left the house to an heir. Now, people 55 and and over can sell repeatedly without increasing their taxes, and there's more incentive for heirs to sell the house. That's as much was 4 commissions where there used to be none.

kjkjadksj 5y ago

It might not be a clean trade but their are situations where your equity growth in house 1 gives you enough liquidity for a larger down payment on house 2 where your monthly payments might even be lower, especially if it means things like you no longer paying pmi. This is how the property game is played in places with moving real estate markets, I know people who paid more a month for the condo they lived in a few years building equity and seeing gain to afford a down payment on a single family home.