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> We're seeing the net result of your desired policy right now where retired boomers sit on 4 bedroom houses with 3 empty bedrooms while anything resembling thi
by amluto 1y ago
> We're seeing the net result of your desired policy right now where retired boomers sit on 4 bedroom houses with 3 empty bedrooms while anything resembling this type of family home is unaffordable for actual families.
Some of this is due to tax policy, at least in the US. If you own an oversized house that you’ve had for long enough, then most of the value is a capital gain. If you sell it, you pay taxes on all but $500k of that gain, even if you promptly buy a new, smaller house that costs almost as much. If, instead, you hold the house until you die, the tax is waived completely.
California has additional perverse incentives due to property taxes.
- bombcar 1y agoSome states are allowing you to “carry around” your assessed value, perhaps the $500k cap gains exclusion should be made similar - you can carry your basis similar to a 1039 exchange if you sell and rebuy in the same area soon enough.
- amluto 1y agoThere used to be a “1034 exchange” in which you exchanged one personal residence for another. I don’t know why it was repealed.
- bombcar 1y agoThe reusable $500k cap gains exclusion is a huge huge thing, bigger than some realize. (Though it is interesting that you can exclude gains from a house sale but not losses, but you if you own a rental you can claim losses but not exclude gains (though you can 1039).)
- amluto 1y agoThe reusable $500k exclusion is great in some markets. In the markets with serious housing cost problems, it’s nowhere near adequate. If you have a house that you’ve owned for 30 years in a market where the cheapest houses cost $3 million, and you want to downsize and move into a nice $2 million condo (sigh), and you live in a high-tax state like CA, you will owe long term capital gains tax on nearly $2.5 million, which comes out to around $750k. Real estate agent fees can easily eat up most of the remaining profit, and you probably end up with much higher HOA fees. And these expenses are basically a complete loss to your heirs. And, in CA, your property taxes increase from near zero to $20k/year. So you probably don’t make the trade, and those spare bedrooms remain unavailable to anyone who would want them for the rest of your life.
- PopAlongKid 1y agoWhat is a §1039 exchange? That code section was repealed over 30 years ago. Maybe you mean §1031 exchange?
- bombcar 1y agoYeah that’s the one. I get the number wrong all the time (I’m qualified to be an LLM!)