this post was submitted on 30 Jan 2024

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Boomers wanting to downsize face huge tax bills (www.cnn.com)

submitted 9 months ago by MicroWave to c/news

165 comments fedilink hide all child comments

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.

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[–] [email protected] 87 points 9 months ago (65 children)

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

[–] [email protected] 8 points 9 months ago (3 children)

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!

[–] captainlezbian 4 points 9 months ago (2 children)

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.

[–] Dusktracer -1 points 9 months ago (1 children)

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.

[–] captainlezbian 4 points 9 months ago

That attitude that the majority of taxes go to paying politicians is part of the issue. Yeah politicians suck and many are overpaid. The military is too. You me and everyone else knows these will be cut after infrastructure and welfare. Fighting for tax cuts then becomes “I don’t want to pay for infrastructure or welfare”. And seriously look at anti tax sentiments, they’re often anti welfare or anti government assistance.

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