The tax trap of the “Boomer”

Boomer tax

One item that doesn’t come up much is the taxation of selling a family home. I meet with many people who because of their length of ownership cannot afford to sell their home. Let me explain.

If you bought a home years ago for let’s say $250,000 and now the home is worth $1,500,000 you may have significant tax consequences. Sales price – $1,500,000 deducting sales costs and repairs for sale along with improvements may bring that number down a bit but lets just say the net is $1,400,000. Now deduct $500,000 for your tax exclusion if you are a married couple or $250,00 if you are single. $1,400,000 – $500,000 is $900,000. Now subtract what you paid for it and your taxable amount might be $650,000. Taxes on the balance could be significant for you if you are trying to buy another home in the same market or if you have refinanced the home over the years and have little equity! You still owe the taxes. This is where long term planning is advisable. Is your home in a trust? If your home is in a trust you may avoid these taxes when a spouse passes away. Talk to a tax professional as everyones tax situation is different.

There was an article that I read recently that was talking about “Boomers” not wanting to move. This is one big reason. If they lowered the tax rate or raised the exclusion amount the boomers might be able to afford to move off to another area and maintain their equity thereby freeing up some housing for somebody else.

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